Wynn stock sale boosts bonds; Sprint gains continue; GM up further; MGM posts loss, gets waiver

By Paul Deckelman and Paul A. Harris

New York, March 17 - Wynn Las Vegas LLC's bonds pushed higher in very heavy trading after its parent company, Wynn Resorts Ltd., did an upsized equity offering to bolster its liquidity.

Elsewhere in the gaming sector, there was some activity in MGM Mirage ahead of the big Las Vegas-based casino operator's long-delayed fourth-quarter report, which as expected, showed a sizable loss versus a year-earlier profit and included a going concern warning. However, the company also got a little time from its lenders to deal with its problems.

Several traders saw Sprint Nextel Corp.'s bonds continuing to firm, although there were also traders who saw the Overland Park, Kan.-based telecommunications company's bonds shed some of the gains they had notched on Monday.

But General Motors Corp.'s bonds kept right on rolling along higher.

Market indicators ease off

A trader saw the widely followed CDX High Yield 11 index of junk bond performance - which was unchanged on Monday after four consecutive upside sessions - again unmoved on Tuesday, continuing to quote it holding steady at 69½ bid, 70 offered.

The KDP High Yield Daily Index meantime retreated by 11 basis points to end at 51.05, while its yield widened by 4 bps to 14.16%.

In the broader market, advancing issues continued to lead decliners, although their margin narrowed to five to four.

Overall market activity, measured by dollar-volume totals, rose about 5% from the levels seen in Monday's session.

A trader said that "given the run-up in stocks, the bond market was kind of flat, and most of it kind of revolved around the same 10 names."

Another said that "our market pretty much did not follow the equity market. We were pretty much flat and down, maybe off ½ point across the board."

Yet another said that while it "seemed like there was a better tone," there wasn't much activity, other than Wynn. He saw bellwether issue Community Health Systems Inc.'s 8 7/8% notes due 2015 at 94.125 bid - actually down slightly from 94.25 on Monday, with $14 million traded, a result which he said was "surprising - I thought the overall tone was better than that, although quiet."

At another shop, a trader, noting the March 17 date on the calendar, quipped that a lot of people "were more concerned with their Jameson's, their bagpipes and their beer."

Wynn a winner

Easily the most heavily traded issue on an otherwise dull day was Wynn Las Vegas' 6 5/8% first mortgage notes due 2014.

A trader said that the issue "probably traded $50 million before 10 a.m. [ET]. It was the first and only thing that was active. It ended up trading [nearly] $100 million on the day, which given that we only did about $1 billion total today, was a big hunk of everything that traded. He pegged the bonds at 73.5 bid, up 1¾ points.

Another trader said that the bonds finished at a round-lot level of 73.625 bid, up from 71.75 on Monday, on volume of $81 million, over four times as much as the next most actively-traded junk bond. He said that the issue had not only gotten a boost, but "a turbo-boost" from news of the company's equity sale.

A market source at another desk saw the bonds open up about 3 points at just under 75, and then push above 76 in busy round-lot trading and as high as 77 on some smaller trades. But those bonds later came off such peak levels to settle in around the 73 area.

Wynn announced late Monday that it would sell 7 million shares, and give underwriters Deutsche Bank Securities Inc. and Merrill Lynch & Co. a greenshoe option to buy an additional 1.05 million, with the proceeds to be used general corporate purposes, including repayment of debt.

Wynn subsequently said Tuesday that it had upsized the equity offering to 9.6 million shares, pricing them at $19, slightly under Monday's closing price of $19.65, for gross proceeds of $182.4 million, with Wynn to realize net proceeds of around $175 million after payment of commissions and other expenses. The company also granted a greenshoe for up to an additional 1.44 million shares to joint bookrunners Deutsche Bank, Merrill Lynch and to J.P. Morgan Securities Inc., Moelis & Co. and Wachovia Capital Markets, LLC, who acted as co-managers and underwriters for the offering.

'Other' Wynn bond a step-child

Even as the Wynn '14s were dominating market action, one of the traders noted that the company's "other" issue of 6 5/8% 2014 notes - a $400 million add-on that priced in November 2007, about three years after the original $1.3 billion of notes - traded at 70.75 bid, down from 71.25 on Monday, on volume of $9 million, which he called "decent volume for that bond, but nowhere near the other issue."

He theorized that despite identical coupons and maturities, the relatively "new" bonds usually trade a couple of points behind the "old" issue "because they are smaller and less liquid. "The 'new' bonds are treated like a step-child because of a lack of liquidity."

But another trader called them up a point on the day at 71 bid, 73 offered, and said that they were "up 3 points since Friday."

Freeport active and easier

A trader saw Freeport-McMoRan Copper & Gold Inc.'s bonds as the second-most active name in Junkbondland on Tuesday, after Wynn - and noted the big drop-off in volume levels between the Wynn "old" notes and even the busiest Freeport paper.

The Phoenix-based copper and gold mining company's floating-rate notes due 2015 were at 75, on $20 million traded, down ½ point on the day, while its 8 3/8% notes due 2017 eased by ¼ to 3/8 point, at 89.5 with just under $20 million traded.

Traders mixed on whether Sprint run curtailed

A day after the solid rise in Sprint Nextel and Sprint Capital Corp. bonds, a trader saw Sprint's 6% notes due 2016 at 66.75, down 1¾ point, on volume of $12 million, while its 8 3/8% notes due 2012 were down a deuce at 82.25, on $10 million traded.

A second trader said that the Sprint bonds ""were up one day, and down the next, giving back a part of the profits from [Monday]."

He saw the 6s drop back to 67 bid from 68.5 on Monday, on $16 million traded, while its 8 3/8% notes due 2012 lost 1½ points to end at 82.5 bid, on $11 million of volume.

Another trader, however, saw the company's 6 7/8% bonds due 2028 at 57 bid, 59 offered, which he called up 2 points since Monday and up 6 since Friday.

The bonds, he said, had "caught a pretty good bid."

A market source saw Sprint's 6% notes due 2016 push up to 67.75 bid, from prior levels around 65.

Although there was no fresh news out about the company, Sprint is still viewed favorably in many quarters, Monday's equity downgrade by Wachovia Corp. on expectations of increased "churn," or customer turnover, notwithstanding.

At Goldman Sachs, analyst Scott Marchakitus noted in a research report that Sprint "is making progress to improve customer service, reduce churn and strengthen its liquidity position." While allowing that Sprint "will likely see continued subscriber losses in the near-term, we believe the rate of deterioration should ease."

The analyst said that Sprint improved its financial position as 2008 ended, accumulating more than $5 billion of liquidity, With a "solid" financial profile, he theorized that the company "might consider a debt exchange," particularly one which would be targeted at the holders of the Nextel legacy bonds left over from the merger of the then-Sprint Corp. with Nextel Communications Inc. several years ago.

Such a step, should it be undertaken, "would potentially allow S to reduce its debt by roughly $1.5 billion, in our view, while helping to push back any upcoming obligations for several years."

Sprint offers "compelling value, especially the Nextel legacy bonds," Marchakitus concluded.

MGM trades around ahead of results

A trader saw $12 million of MGM Mirage 6% notes coming due on Oct. 1 at 65, while "a like amount" of the 6¾% notes due 2012 traded at 38 bid, 39 offered.

A second trader also saw the 6s at 65 bid, or a 109% yield to maturity, up from 64 on Monday. But he said that its 6¾% notes due 2012 were meantime down 2 points at 38 bid, with $11 million changing hands, while its 7½% notes due 2016 dipped to 36.5 from 37.25, on $6 million of volume

At another desk, a trader called the bonds "a little active." He saw the 6s up 1½ points to 65, while the 63/4s lost 2 points to end at 38, the 7 1/2s were down ¾ point at 36.5, and the 6 5/8% notes due 2015 retreated 1 3/8 points to 37.625

Another market source said that with the company expected to post a big loss when it reported 2008 fourth-quarter and full-year trading results after the market close, trading in the MGM paper was "like the calm before the storm."

After trading had wound down for the day, MGM reported a fourth-quarter loss of $1.15 billion, or $4.15 per share, a sharp deterioration from its year-earlier profit of $872.2 million, or $2.85 per share. The loss included a $1.18 billion charge related to the declining value of several acquisitions dating from 2005, including that of Mandalay Resort Group.

Revenue fell 16% year-over-year to $1.62 billion, well below the roughly $1.71 billion that Wall Street was looking for. Excluding the charges and other unusual items, the company posted 10 cents per share of adjusted earnings, down by about a nickel per share from what the analysts had been looking for,

Along with the earnings, MGM delivered the not-unexpected news that its auditors expressed "substantial doubt" whether the company could continue as a going concern given the downturn in the gaming business and the company's heavy leverage burden. The warning increases the likelihood MGM will seek bankruptcy protection from creditors at some point - although that is not going to happen immediately, since the company also said that it had gotten a waiver from its credit facility lenders on complying with its financial covenants through May 15.

In connection with the waiver, the company repaid $300 million under its revolving credit facility, an amount that is not available for re borrowing without the consent of the lenders.

MGM is also barred from prepaying or repurchasing any debt or disposing of assets.

The company said that it intends to work with its lenders to obtain additional waivers or amendments prior to the expiration of this one so as to address potential future non-compliance with covenants.

GM pleasure trip continues

General Motors's recent upside ride was continuing on Tuesday, a trader said, pegging the benchmark 8 3/8% bonds due 2033 at 18.5 bid, up from 17.25 offered, although he said that volume in the normally well traded benchmark bonds had dwindled to about $2 billion. "It's not a lot of volume," he said, "not even a lot of odd-lots trading."

He saw GM's 7.20% notes due 2011 at 23 bid, well up from their most recent off-lot level of 19.5 on Friday, although only $1 million traded.

Another trader said that there were "continued buyers" in GM, in the latter's GMAC LLC automotive financing arm and in rival Ford Motor Co.'s bonds, "particularly buying in the front end" as investor sentiment about the troubled auto industry's survivability, at least in the near-term increased.

GM's bonds have accelerated rapidly since the company's declaration last week that it will not need the $2 billion of federal bailout money for the month of March that it had originally thought it would need.

Starts surprise brings little bond boost

Traders said they did not see much activity in homebuilder bonds, despite a surprisingly large February rebound in housing starts.

A trader said that Toll Brothers Inc.'s 4.95% notes due 2014 were at 83 bid, unchanged on the session.

He also saw D.R. Horton Inc.'s 9¾% notes due 2010 up perhaps 3/8 point to 100.25 bid, on $4 million traded.

The Commerce Department said that construction started on 583,000 houses at an annual rate in February, a 22% jump from the record low seen the month before and the largest increase since 1990.

However, analysts cautioned that while the big rise is a welcome development, it probably doesn't mean the housing bottom has yet been reached, since the weak job market and consumer uncertainty will likely dampen future demand for housing.

No activity in Elan

St. Patrick's Day notwithstanding, no one was seeking to make any green in the bonds of Irish pharmaceutical company Elan Corp. plc. Its 7¾% notes due 2011 remained around the 83 bid levels at which they had traded on Monday.

Dublin-based Elan's other issues - its floating-rate notes due 2011 and its 8 7/8% notes due 2013 - were trading around 79 bid earlier in the month, but have not changed hands in more than a week, a market source said.

Elan is best-known for teaming with Biogen Idec Inc. to develop the multiple sclerosis medication Tysabri - which has encountered some patient-safety problems over the last few years - and is also developing an Alzheimer's drug, Bapineuzumab.

New Doles firm a bit more

A trader said that Dole Food Co.'s new 13 7/8% secured notes due 2014 was continuing to move higher, albeit slowly and gradually.

He saw those bonds Tuesday at 94 bid, 94.5 offered. That was up from the 93ish levels at which those bonds had been trading on Monday, and up further still from the 92.883 level at which the Westlake Village, Calif.-based fruit and vegetable processing company had priced its upsized $350 million offering of the bonds on Friday.

High grade blocks junk rally

Meanwhile the rally in the equities market, which has seen the S&P 500 go up 15% since March 9, hasn't done anything for fixed income, according to a money manager from a mutual fund whose portfolio includes bonds - mostly high-yield - and stocks.

"A whole lot of investment-grade paper has come, and pricing has gotten a little richer," said the money manager.

"That really stalled out the high-yield market.

"The high-grade supply needs to be a little more digested before you can have spreads narrow."

Also mortgage spreads have stopped narrowing, the investor noted, adding that those need to begin narrowing again before high-yield spreads can do likewise.

"There is a temporary pause here," the investor said.

"High-yield and investment-grade backed up a little, basically in line with Treasuries, while equities have gone higher."

High-yield play in Pfizer

Its ratings notwithstanding, Pfizer Inc.'s $13.5 billion five-part issue of high-grade notes (Aa2/AAA/AA) which priced Tuesday generated significant interest among high-yield players, according to the money manager.

This high-yield investor participated in the 5.35% six-year tranche which priced at a 340 basis points spread to Treasuries.

"There were a lot of hedge funds and high-yield funds that put in for Pfizer," the investor said, adding that the high-yield interest in the deal stemmed from a lack of new issuance in the junk market, especially in the higher-quality junk names.

"Basically every tranche of the Pfizer deal was two-times oversubscribed," the investor said.

"So some people, such as the hedge funds and high-yield funds, got shut out, or got crummy allocations.

"I suppose people wanted to know what those accounts were doing in a double-A deal to begin with."

The Pfizer 5.35% six-year notes were at 320 bps bid, 310 bps offered at 3:30 ET, the investor said, noting that they had priced at 340 bps.

You can't fight success

Asked why a junk investor, accustomed to trolling the waters of BB+ and lower-rated credits, took interest in the AA rated Pfizer deal the source said: "You can't fight success.

"Virtually all of the investment-grade calendar that has come since last fall has gone to premium," the buy-sider added.

Pfizer was the third big pharmaceutical name to come to the high-grade market in a month, following Roche Group, which did $16 billion to partially fund its acquisition of Genentech Inc., and Eli Lilly & Co., which issued $2.4 billion, the buy-sider recounted.

"That's $32 billion of large-cap pharma in four weeks," the buy-sider exclaimed.

However Pfizer was the only one of those three deals that this high-yield investor played.

Although Standard & Poor's rated the new Pfizer notes at AAA, when the transaction closes the ratings are expected to be Aa/A+, the investor clarified.

Meanwhile, as if to put an exclamation point on the investor's remark about the high-grades performing well, the Pfizer tranche of 4.45% three-year notes, which priced Tuesday at a 305 bps spread to Treasuries, closed the session at 245 bps bid, according to a market source.

Quiet in the high-yield primary

The fact that Pfizer attracted significant attention among the high-yield accounts is a sad commentary on the current state of the junk market, conceded the high-yield investor who played the Pfizer deal.

The junk primary generated no news on Tuesday, and there are no deals on the active forward calendar.

Nor has polling of sources on the high-yield syndicates, over the past few days, turned up anything convincing with respect to near-term primary market prospects.

The restructuring front

Meanwhile on the restructuring front, AbitibiBowater Inc.'s exchange, aimed at reducing the company's net debt by about $2.4 billion and significantly improving its capital structure, faces a lot of challenges because of its complexity, according to an investment banker who has been watching the deal.

Transaction is basically a restructuring outside bankruptcy, the source said

"They're going from about $4.5 billion of debt to $1.5 billion of debt, giving up 90% of the equity and doing the rest of it on the backs of the bondholders," the banker commented.

The senior secured lenders are being made whole, which is probably the same way it would come out in a bankruptcy restructuring, the banker added.

"There are a lot of pieces to come together," the source said.

"And the first part of the restructuring, the exchange for the old Bowater bonds, isn't really completed yet.

"They need to take out the 2009 maturities, and they just don't have the cash.

"The cash eats you up if you can't pay off those maturities."

Meanwhile the NXP BV $2.8 billion and €1.5 billion distressed exchange is struggling, the banker said, adding that bondholders appear to be taking the view that they may might see a better outcome in a bankruptcy.

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