El Paso, Landry's bring deals at discount; NOVA jumps on funding deal report; gaming names clobbered again

By Paul Deckelman and Paul A. Harris

New York, Feb. 4 - Primaryside activity resumed Wednesday in the high-yield market as El Paso Corp. brought in a quickly shopped half-billion-dollar offering; the deal, as expected, priced at a discount of several points to boost its yield, and the new bonds were seen having firmed in the aftermarket.

Later in the day, Landry's Restaurants Inc. priced its bond offering - but despite the issue's short tenor and secured status, the company had to price the offering at a hefty discount to par - almost three times that of the El Paso deal - in order to boost the yield from an already-generous double-digit coupon to above the 20% level to lure in potential buyers. The Landry's bonds came too late in the day to trade in the secondary.

Back among the established issues, NOVA Chemicals Inc.'s recently badly-battered bonds zoomed, as did the company's shares, amid news reports indicating that the beleaguered Canadian chemical manufacturer may have found a savior - or maybe even two of them - to step forward and lend it a crucial $100 million it needs to raise to appease its bankers.

Gaming issues were languishing at lower levels, with Wynn Las Vegas LLC and MGM Mirage leading the way downward. Station Casinos Inc.'s bonds - some issues now trading for just pennies on the dollar - began trading without their accrued interest as the company skipped a coupon payment and was reported to be mulling a pre-packaged bankruptcy reorganization. Sector investors meanwhile awaited word on what was happening with Trump Entertainment Resorts Inc. as the company faced the expiration deadline for its second extension on a coupon payment originally scheduled for December.

Angiotech Pharmaceuticals Inc.'s bonds were seen holding onto and even building upon the gains which that paper has been accumulating all this week, helped by the news that health authorities in Japan have given the green light to the use of one of the Canadian medical device-maker's key products.

A tale of two markets

Meanwhile in the primary market, Wednesday was the cheapest of times as well as the most expensive of times, with respect to the interest rates issuers had to pay.

With the buy-side flush with cash - and having a dickens of a time putting it work - two issuers priced junk bonds. One issue came with the lowest yield in almost five months. The other priced with the highest yield printed on a bond going back at least as far as the beginning of 2001, according to Prospect News data.

El Paso returns

Eight weeks after it priced $500 million of junk yielding 15¼%, El Paso Corp. returned to the primary market to do another $500 million, and decreased the yield by a whopping 612.5 basis points.

The Houston-based natural gas company priced its new issue of 8¼% seven-year senior unsecured notes (Ba3/BB-) at 95.535 to yield 9 1/8% in a Wednesday drive-by deal led by left bookrunner Morgan Stanley. Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. were joint bookrunners.

While the coupon came on top of the coupon talk the yield came at the tight end of the 9¼% area yield talk.

The El Paso deal played to a solid book, with a few notable accounts missing because of the tight pricing, according to a syndicate source.

One investor had sufficient confidence in the demand for the new El Paso paper to put in for bonds that were intended to be "flipped" back into the market.

Spotting the new El Paso 8¼% notes due 2016 at 96 bid, 97 offered, on the break, late Wednesday afternoon, this investor did not sound the least bit anxious about the strategy.

The Wednesday deal came with less than eight weeks having passed since El Paso priced a $500 million issue of 12% five-year senior notes (Ba3/BB-) at 88.909 to yield 15¼% on Dec. 9.

The 9 1/8% yield on the new El Paso notes is the lowest seen since Sept. 12, 2008 when Frontier Oil Corp. priced a $200 million issue of 8½% eight-year senior notes (Ba3/BB/) at 98.58 to yield 8¾%.

A source close to Wednesday's deal said that the dramatic drop in yield between El Paso's December deal and the new one is absolutely significant.

"It just shows how much the market has swung back around," the official commented.

Landry's yields 20.346%

Elsewhere Wednesday Landry's Restaurants, Inc. priced a $295.5 million issue of 14% senior secured notes due Aug. 15, 2011 (B3/B) at 88.00 to yield 20.346%.

Bookrunner Jefferies & Co. launched the deal at a size of $270 million. The issue generated $260.04 million of proceeds.

With respect to the price talk, the coupon came on top of coupon talk, while the issue price came at the cheap end of the 88 to 89 price talk, and the yield came wide of yield talk that had the notes coming in a range of 0.25% below or above 20%.

The yield printed on the new Landry's notes is the highest for a dollar-denominated Rule 144A high-yield deal going back at least as far as the beginning of 2001, according to Prospect News data.

Landry's overtook Trump Casino Holdings, LLC and Trump Casino Funding, Inc. which priced a $65 million tranche of second priority mortgage notes due Sept. 15, 2010 (Caa1/CCC) at par to yield 17 5/8% on March 13, 2003.

A lot of cash

"We are seeing a lot of cash coming in," said a high-yield mutual fund manager who suspects a fair amount of it is coming from investors who do not want to be in equities.

Given the inflows of cash, this investor is surprised that the deal volume in the new issue market hasn't picked up more meaningfully.

"People are picking away at the secondary market," the investor said, adding that sizable positions are almost impossible to come by in the secondary.

Meanwhile, a high-yield syndicate official suspects that pent-up demand for bonds, which is being driven by the big inflows of cash into the high-yield, helps explain El Paso Corp.'s ability to print the lowest junk yield in nearly five months on the notes it priced Wednesday.

"Last week's AMG number was $350 million," the sell-sider reflected, referring to the $351.8 million of inflows for the week to Jan. 28 reported last Thursday by AMG Data Services, the ninth consecutive positive flow.

"Underwriters are searching furiously for issuers that can come to market, now that the prices are starting to make sense," the sell-sider said.

Pressed for names of potential issuers the sell-sider kept his own counsel, but allowed that discussions are underway.

"We're still in the early innings, here," the official said. "There will be more to come."

An empty calendar

The Landry's deal which priced Wednesday was the only one taken on a full investor roadshow thus far in 2009.

In its wake the active forward calendar is vacant.

While sources were not volunteering names of potential issuers on Wednesday, the sell-sider's remark, in the wake of the El Paso deal, that "prices are starting to make sense," might resonate with at least one potential issuer.

As mid-January gave way to late-January a high-yield mutual fund manager told Prospect News of reverse inquiry discussions that had been held with HCA, Inc.

Those discussions came to an impasse, the buy-sider said, when HCA made known its reticence to do a deal that would result in a double-digit yield.

The company might be interested if it could get a deal done with a rate in the eights or nines, the investor said, adding that the reverse inquiry had been undertaken with a 12%-handle yield in mind.

Nevertheless, given Wednesday's El Paso deal, which yielded 9 1/8%, potential issuers such as HCA might now be positioned to surmount their fears of double-digit yields.

New El Paso bonds trade up, Landry's not seen

When the new El Paso 8¼% notes due 2016 were freed for secondary dealings, market participants saw them shoot up on the break to about the 96 bid, 97 offered.

Those bonds kept right on climbing, with several traders seeing them get as good as 97.5 bid, 98.5 offered.

The Landry's Restaurants' 14% notes due 2011, on the other hand, came too late during the session for any kind of meaningful aftermarket activity. However, traders, when appraised of the steep discount at which the bonds came and the 20%-plus yield being dangled before investors, responded with varied comments along the lines of how "money is getting more expensive," and how Landry's "must be desperate" for the new cash.

Market indicators show improvement

Back among the established issues, the widely followed CDX High Yield 11 index of junk bond performance, which gained ¼ point on Tuesday, continued in that positive vein on Wednesday, with a trader quoting the market measure up ¼ point at 73½ bid, 74 offered.

The KDP High Yield Daily Index was meanwhile up 35 basis points on the day at 54.33, while its yield tightened by 14 bps to 13.19%.

In the broader market, advancing issues continued to lead decliners, by a not-quite six-to-five margin.

Overall market activity, measured by dollar-volume totals, rose by 33% from the levels seen in Tuesday's session.

A high-yield syndicate official noted that junk outperformed stocks on Wednesday. He added that cash likely did considerably better than the rise in the CDX index.

"The CDX index is becoming somewhat suspect because there is stuff going on in there with respect to defaults, which seems to be pressuring the index in ways that are a touch unnatural," the official said.

A trader said that he "saw things a little better" in Wednesday's session, adding that "it seems like the buyers are sneaking in."

"We had a little more volume today," another said. "Activity has certainly picked up."

For instance, he saw Community Health Systems Inc.'s $3 billion of 8 7/8% notes due 2015 and First Data Corp.'s $2 billion of 9 7/8% 2015s - which some in the market regard as a barometer or proxy for the broader market because of their great size and liquidity, widespread distribution to accounts and easy tradability - each up nearly a point on the day, on brisk volume. Franklin, Tenn.-based hospital operator Community Health's bonds were up ¾ point on the day at 98 bid, on volume of $20 million, while Greenwood Village, Colo.-based e-commerce processor First Data's notes also gained ¾ point to 59, on what he called "very good volume" of $19 million.

Gaming goes lower

But the most notable feature of the session, he said was that "gaming continues to falter" - even comparatively well-run names like Wynn Las Vegas, whose 6 5/8% notes due 2014 dipped to 71.25 bid from 72 previously, on volume of $41 million, which he called the most active junk issue.

The Nevada-based company is now considered the largest gaming operator by market capitalization - no surprise, since its stock at around $26 trades at several times the price of such competitors as MGM Mirage, Las Vegas Sands Corp., Isle of Capri Casinos Inc. and Boyd Gaming Corp., all of which are in single digits dollarwise - and unlike many of its sector rivals, particularly Trump, Las Vegas Sands and the now-privately held Harrah's Entertainment Inc. and Station Casinos, it is not considered to be in any kind of looming fiscal distress brought on by being excessively leveraged.

Even so, the company founded and nurtured by industry legend Steve Wynn is not immune to the shocks that have befallen the whole sector. Wynn - which back in December dropped the pricy rates at its brand-new Encore and the more established Wynn Las Vegas in order to keep visitors coming in the short-term, said Tuesday that it would cut the pay and hours of all of its Las Vegas employees and eliminate 401(k) matching contributions and 2009 bonuses, in hopes of saving $75 million to $100 million annually.

Analysts acknowledged that Wynn's strategy was probably the least painful way to avoid even more onerous measures like layoffs - but several of them subsequently lowered their earnings targets or ratings on the company's shares, noting the fact that Wynn had to take such measures testifies to the dire straits the gaming industry is in.

Dennis Forst of Key Bank Capital Markets wrote in a research note that "the skittish investment climate today does not augur well for any gaming company and we are afraid Wynn Resorts' shares will underperform over the near term."

With even the powerful Wynn forced to acknowledge the industry's troubles and tighten its belt, the odds against other, more financially problematic competitors seeing a recovery any time soon are even longer.

The trader noted that MGM Mirage's 6 5/8% senior subordinated notes due 2015 were at 51.625, down from 52.5 on Tuesday, on $9 million traded. But the big loser in the company's capital structure was its 6% notes slated to come due on Oct. 1. They traded at 84.5 bid, or a 34% yield to maturity, well down from 89 on Tuesday, on $16 million traded.

At another desk, a market source saw the 6s drop to 83, a 9-point plunge on the day.

Las Vegas-based MGM's other short maturity, its 6½% notes due July 31, were just as badly off, falling to 89.5, or a 31% yield to maturity, from 93 on Tuesday, also on $16 million traded.

Station trades flat

A trader saw Station Casinos' bonds "now trading flat," or without their accrued interest, in light of the missed coupon payment on the 6½% senior subordinated notes due 2014 and the company's consideration of a Chapter 11 filing. "They weren't flat until [Tuesday] morning, and some people were trading them with accrued Tuesday. Now, the bonds are officially flat."

He pegged Station's 6 7/8% senior subs due 2016 at 3 bid, 6 offered - in that same low-single-digits range in which all of its subordinated bonds have recently been trading in, but now trading without the interest.

Las Vegas-based Station - which aims for the niche market of local gamblers at its somewhat smaller and relatively less ostentatious casinos around the Nevada gaming capital, rather than trying to attract the high-rolling big players known as "whales" who prefer the more glitzy and luxurious gaming palaces on the Las Vegas Strip - did not make a scheduled $14.6 million interest payment Tuesday to holders of the $450 million in 6½% notes.

It said Wednesday that it will seek bondholder approval for a restructuring plan that will be implemented via a pre-packaged bankruptcy. Both Standard & Poor's and Moody's Investors Service lowered their ratings on Station.

Trump leaves 'em guessing

The trader also said that he had seen "no news out" on Trump Entertainment Resorts "on what they're going to do about" the expiring extension which the company was granted on making the $53.1 million interest payment on its 8½% notes due 2015. The payment was originally due on Dec. 1, but Trump got extensions from a majority of its bondholders and separately, from its bank lenders, postponing the payment first to Jan. 21 and later, to Feb. 4, giving the Atlantic City gaming company fronted by flamboyant billionaire Donald J. Trump time to engage in negotiations with its debtors on reducing its debt burden.

As of press time Wednesday evening, there was no word from the company on whether the grace period had again been extended, the interest payment made, or some other course decided.

The trader meantime saw the bonds closing Wednesday in a context of 15-17 or 16-18, and still trading with their interest, for now.

New life for knocked-around NOVA

NOVA Chemicals' bonds - particularly its 7.40% notes slated to come due on April 1 - surged strongly, along with the Calgary, Alta.-based chemical company's shares, on news reports indicating that it may be close to a deal to raise $100 million which it needs by Feb. 28 to stay in the good graces of its bankers.

A trader said the April 1 bonds were 'up significantly" on Wednesday to 70 bid, 73 offered, which he called a gain of 13 or 14 points on the day. He said the bonds had actually traded as high as 75 during the day.

Another trader also saw those bonds at 70, which he called a 296% yield to maturity, on about $30 million traded. The bonds had finished at 56.5 Tuesday on a round-lot basis.

A market source saw the 7.40s initially jumping some 20 points on the news reports about the funding efforts to a 75-76 context, in active large-block trading, before falling back from those peaks later on.

Over the past few sessions, those bonds had steadily fallen, going from the mid-80s last week all the way down to middle 50s by Monday and staying there Tuesday, amid investor worries that the company would be unable to pay off the $250 million of maturing notes.

While the 7.40% notes were leaping, the company's other bonds were also being lifted, albeit more modestly and on considerably less volume. A trader saw the company's 6½% notes due 2012 last trading at 34.5 bid, up from 27.75 on Tuesday, with $6 million traded.

NOVA's floating-rate notes due 2013 moved up to 33.5 bid from 25.5 previously, on $5 million traded.

The trader saw NOVA's 7 7/8% notes due 2025 at 27.5 bid, on just $1 million traded, but he noted that the last comparable round-lat trade in that particular NOVA issue was 34 at mid-January - before the bonds started nosediving to their recent lows on investor worries about the company's viability and its capacity to pay the maturing 7.40s.

NOVA's New York Stock Exchange-traded shares more than doubled at one point during the session before finally coming off those highs and ending up 52 cents, or 47.27%, at $1.62, on volume of 18 million, around 16 times the norm.

The bonds and shares leapt skyward after the Canadian newspaper The Globe and Mail reported that NOVA may have struck a deal on borrowing the $100 million it needs to appease its bankers, either from Alberta Investment Management Corp. or AIMCo, a $75 billion pension plan, or from the provincial government-owned ATB Financial, a lender with $23.3 billion of assets.

NOVA itself meantime said that it was in talks with potential backers - but declined to offer any further details.

The newspaper said that there is "speculation that if NOVA receives a backstop in the near future, a lending syndicate led by Toronto-Dominion Bank will be willing to waive or rework covenants on other loans that come due in coming months."

It also reported on market speculation that if NOVA can nail down the financing it needs by the month's end, "the stock will rally and the company would then issue equity to further shore up its balance sheet," with several investment bankers already pitching potential stock-sale deals at the company.

Angiotech gains on product news

Angiotech Pharmaceuticals' bonds were seen continuing to trade at the higher levels to which the Vancouver, B.C.-based medical device maker's paper had recently pushed, spurred by positive overseas news on one of its key products.

A trader saw the company's floating-rate notes due 2013 ending the day at 60 bid, up ¾ point on the day, on $4 million traded.

A market source at another desk saw them trading in a 58-60 context, mostly on large-block transactions. Those bonds had been trading around 55 on Monday and moved up to 59 Tuesday on relatively brisk volume that day of $9 million, and continued to edge higher Wednesday.

Going back a bit, they had been as low as 48 bid at the beginning of last week - but had ended the week at 51.5, likely given a boost on the news last Thursday that Japanese health authorities had approved the use of one of the company's major product lines, the Taxus drug-eluting coronary stent system jointly developed by Angiotech and partner Boston Scientific Corp., which markets the device worldwide.

A stent - essentially, a tiny, non-solid metal framework tube - is frequently used in the treatment of coronary disease or related conditions, inserted into an artery to keep the narrow blood vessel from closing up. The stent developed by Angiotech and Boston Scientific slowly releases paclitaxel, a drug which prevents excessive buildup of scar tissue inside the blood vessel that, if left untreated, could eventually block the stent and require the stenting procedure to be repeated.

Angiotech's 7¾% notes due 2014, which had been trading at around 20-21 before the Japanese news, had pushed up to around 22 by the end of last week and have been trading this week in a 24-25 context, although on less volume than the floater.

Tasty move for Dole Foods

A trader saw Dole Food Co.'s 7¼% notes due 2010 push up to 89.125 bid from 85.25 on Monday, on volume of $9 million, calling it "a nice move."

There was no news seen on the Westlake Village, Calif.-based fruit and vegetable company that might explain the rise.

Distressed debt doings

A trader said that he saw Spectrum Brands Inc.'s bonds "move a little, but not much," with its 7 3/8% notes due 2015 at 25.25 bid, 26.25 offered and its 11% notes due 2013 around 29. He said "they weren't that active - not that many [trades]." The Atlanta-based consumer products company filed for Chapter 11 protection on Tuesday, unable to make a $25.8 million interest payment on its debt.

Elsewhere, a trader said that Sirius XM Satellite Radio Inc. "was rumored to be trading flat, but was in fact trading with its accrued" interest. The New York-based satellite radio broadcaster's 9 5/8% notes due 2013 were at 25 bid, 27 offered. Investors have lately worried how the company will be able to make a $174.6 million debt payment due Feb. 17, as well as $750 million of other obligations coming due later in the year.

In the autosphere, a trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 unchanged at 13.5 bid, 14.5 offered and Ford Motor Co.'s 7.45% bonds due 2031 likewise steady at 21.5 bid, 22.5 offered.

A trader meantime saw ArvinMeritor Inc.'s 8¾% notes due 2012 at 42 bid, but noted that only $1 million changed hands, as the market apparently had little reaction to news that the Troy, Mich.-based automotive parts supplier had posted a yawning fourth-quarter loss of $991 million, or $13.71 per share, versus a year-earlier loss of $12 million, or 17 cents per share. Excluding unusual non-recurring items, the company posted an adjusted loss from continuing operations of $56 million, or 77 cents per share, compared with an adjusted profit from continuing operations of $6 million, or 8 cents per share, in the same period last year. The adjusted loss was far wider than analysts' expectations of about a nickel or so of red ink.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.