Gaming names tumble on state revenue reports; Pilgrim's Pride up on USDA data; funds lose $45 million

By Paul Deckelman and Paul A. Harris

New York, July 10 - Gaming bonds turned out to be a losing hand on Thursday, as the casinos retreated on a double dose of bad news - reports by regulators in both Nevada and New Jersey, the two most important U.S. gaming jurisdictions, showing a sharp fall off in the amount of money wagered by gamblers. Big losers included Harran's Entertainment Inc., Station Casinos Inc. and Trump Entertainment Resorts Inc.

But while gaming investors were rolling snake-eyes, Pilgrim's Pride Corp. bondholders and shareholders certainly had nothing to squawk about, as the Pittsburg, Tex.-based chicken producer was higher on both counts, helped by a positive report from the U.S. Department of Agriculture.

General Motors bonds, and those of its 49% owned GMAC LLC automotive financing unit, were seen mostly lower, roiled by renewed speculation that the troubled Detroit giant might have to eventually file for bankruptcy. Things got so bad that the company's chief executive officer was forced to directly address the rumors and deny that the company has any such plans.

Again on Thursday the primary market generated no news.

Funds fall by $45 million on week

And as trading was wrapping up for the day, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday $45.2 million more left the weekly-reporting funds than came into them, in contrast to the result seen the week before, ended July 2, when there was an inflow of $87.124 million. That prior week's gain broke a two-week losing streak in which net outflows had totaled $784.8 million, according to a Prospect News analysis of the figures. Those two weeks of outflows, in turn, had followed a stretch of 11 consecutive weeks, running from early April to mid-June, in which inflows totaled $3 billion, according to the Prospect News analysis. Before April, outflows had been recorded in most weeks.

With the year slightly more than half over, inflows, after a slow start, remain solidly ahead, with 16 inflows, versus 12 outflows, seen in the 28 weeks since the start of 2008, according to the analysis.

According to market sources, net inflows from the weekly-reporting funds since the start of the year, excluding distributions but including previous adjustments and revisions, are now estimated at $1.19 billion, down from $1.235 billion the previous week. At its peak, the 2008 net inflow totaled $1.933 billion in the week ended June 11.

A market source meantime said that in the week ended Wednesday, funds which report on a monthly basis, rather than on a weekly one, showed an inflow of $54.6 million, on top of the previous week's $406.855 million. That brought the year-to-date total inflow for the monthly reporters up to $3.07 billion. Combining the weekly- and the monthly-reporting totals, year-to-date inflows for high yield mutual funds stand at $4.26 billion, not much changed on the week.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, more recently, hedge funds.

Market indicators lower

A trader said that the widely followed CDX junk bond performance index was around unchanged at the 92 3/8 bid, 92¾ offered level. The KDP High Yield Daily Index lost 18 basis points to end at 71.35, while its yield widened by 4 bps to 10.46%.

In the broader market, advancing issues fell behind decliners by a better-than five-to-four margin. Activity, represented by dollar volume, fell by 23% from the levels seen in Wednesday's session.

A trader slammed the junk market as being "stupid and quiet."

Another trader said that "equities were up and down all day, and I don't think that it really created any sense of confidence in the bond market." He described the day's trading as quiet, and said that while his firm had traded bits and pieces of this and that, "nothing was too noteworthy on the day." So unremarkable was it that the morning's trading "seems like a day ago."

Overall, "it was kind of a hodge-podge, a mixed bag of different names and sporadic stuff at best. Then by mid-afternoon, it really, really got quiet."

Gaming bonds get flushed

The news that Nevada's gaming revenues slid in May - combined with a similar fall off in June's revenues in Atlantic City - combined to push the bonds and shares lower, in some cases by a number of points.

A trader saw Trump Entertainment Resorts' 8½% notes due 2015 at 55 bid, 57 offered, "lower by a few points" with "a lot of trading in it" on news of an 11% drop off in Atlantic City casino revenues, "so that would make sense."

Another trader saw the Trumps down in the wake of the poor numbers from both Atlantic City and Las Vegas, which cast a pall over the already struggling sector.

"Everything was down, and everything off the [Las Vegas] Strip got hit especially hard." He cited a 4 point loss in the Trump bonds to 55 bid, and saw Station Casinos' 6½% notes due 2014 off 3 points at 50 bid, 52 offered.

He also saw Harrah's Entertainment's 6½% notes due 2016 off 3 points at 50 bid, 51 offered and said the company's bonds generally were "three to four lower across the board."

A market source saw the Trump bonds off a full 5 points to 55 in active dealings, and saw the Harrah's 61/2s down 1 point at 50.

Another source saw Trump closing at about the 57 mark, but still off 3 points on the session.

MGM Mirage's 8 3/8% notes due 2011 dropped nearly 3 points to around the 91.5 level, while Mohegan Tribal Gaming Authority's 7 1/8% notes due 2014 were nearly 2 points down at the 80 level. Isle of Capri Casinos Inc.'s 7% notes due 2014 were 2 points down at 70 bid, while Pinnacle Entertainment's 8¼% notes due 2012 were off 1 point at 95.

GM grapples with bankruptcy buzz

Ever since a Merrill Lynch analyst last week speculated that a bankruptcy filing by the once-mighty General Motors was something that could not be ruled out, should automotive market conditions continue to deteriorate, bondholders have been understandably skittish and GM's paper and that of its GMAC financing unit have gyrated around at mostly lower levels.

The bankruptcy buzz refuses to go away, prompting no less a personage than GM's CEO, Rick Wagoner, to deny those Chapter 11 rumors on Thursday. The GM chief said that the comments bandied about in the financial media and among analysts about a potential bankruptcy are "not at all constructive or accurate."

He further said that there would be no need to seek court protection, because GM has $24 billion in cash and $7 billion in unused credit facilities.

""Under any scenario we can imagine," Wagoner said at a lunchtime meeting of business leaders in Dallas, "our cash position will remain robust through this year" and the company has options for raising cash beyond that.

However, such encouraging talk could not keep bondholders from continuing to feel angst.

A trader saw GM's 8 3/8% bonds due 2033 most recently traded around 55, "pretty close to where it ended [Wednesday]". He noted the company's denial of bankruptcy speculation, "so they're not going out of business."

He saw GMAC's 8% bonds due 2031 trading around 59 bid, "pretty much where it ended up [Wednesday]. It seemed like it was somewhat stable today. There's always a lot of paper trading, and maybe it's down a point but that's not exactly a big deal," just "more of the same."

Another trader saw the GM benchmark bonds down ¾ point at 54 bid, 55 offered, while domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were also ¾ point lower at 54.5 bid, 55.5 offered.

At another desk, the GM 8 3/8s were observed ½ point lower at 53.5 bid, 55.5 offered, while its 7.20% notes due 2011 lost a point to 67 bid, 68.5 offered. GMAC's 8% bonds were down 1 point at 58.5 bid, 60 offered, while Ford's 7.45s were unchanged at 54.5 bid, 56 offered.

A trader said "you're seeing more and more [GM] paper out there - you're seeing it more and more coming into the flow, but it doesn't seem to be real active. You're seeing people put some more numbers out there."

Pilgrim's Pride powered by USDA

Elsewhere, Pilgrim's Pride's 8 3/8% notes due 2017 were seen up 2½ points on the session in a mid-78 context. That rise went hand in hand with a gain in the company's New York Stock Exchange-traded shares to $14.56, up $1.63, or 12.61%. Volume of 6.9 million shares was more than triple the norm.

The company's bonds and shares, and those of other poultry producers, rose after the USDA released a report showing the industry is taking more steps to cut production, which could lead to higher chicken prices and better profits.

On Wednesday, the reported a nearly 4% drop in the number of eggs ready to be hatched in hatcheries, versus a year ago. The number, called "egg sets," is considered a leading indicator of how many chickens will soon be ready for slaughter; a reduction is seen by analysts as potentially strengthening prices.

Pilgrim's Pride rose despite an earlier announcement from Moody's Investors Service that it had cut the company's corporate rating and probability-of-default ratings to B1 from Ba3, and had lowered its bonds either one or two notches to B3. Moody's cited expectations that margins, cash flow and credit metrics will significantly erode in fiscal 2008 due to high feed grain prices.

Not much chemistry from Dow deal

The big M&A news in the overall financial market - that Dow Chemical will acquire rival chemical manufacturer Rohm & Haas for $18 billion - did not translate directly into ramping up speculation about possible sector consolidation and pushing up bonds of junk-rated chemical companies.

A trader said that "there was probably a more notable presence in that space today because of that transaction" but he said he "had not been made aware of any activity in it."

He said that there were some wide markets in names "we don't typically see. So there seemed to be a little bit of a buzz around the space, but it didn't look like there was a lot trading in it."

Another trader said that even with "the big announcement, not a ton was going on today". He saw "the big one" in the sector as Tronox Inc., whose 9½% notes due 2012 were at 67.5 bid, 68.5 offered, down 2 points.

However, another market source saw the Oklahoma City-based chemical manufacturer's bonds up 1 point to about the 69 level.

Retail names retreat

A trader said that "some more of the retail names were in the market, with the same-store sales numbers out this morning, and I'd bet there were some people who were placing bets in that space."

He said the market "saw action around Levi [Strauss & Co.] and Sally Beauty, and I think people were kind of playing that from the retail sales numbers."

He said that the bonds in those sectors "initially probably drifted a bit, and then probably flattened out on the day."

He noted that San Francisco-based blue jeans maker Levi "had reported pretty bad numbers a day or two ago. Those bonds were pretty much heavy throughout the day."

For instance, a market source saw the company's 9¾% notes due 2015 down 1½ points at 94 bid, 95 offered. At another desk, the bonds were pegged at 94.25, down from 95.5 the previous session.

Sally Holdings LLC's 9¼% notes due 2014 were quoted around 95 bid, down about ½ point from recent levels.

Newsday term loan breaks

Newsday's $650 million of five-year term loan debt (B1/BB+), which was marketed to both high-yield and leveraged loan accounts, hit the secondary market early on in the Thursday session, with the fixed- and floating-rate tranches trading above their discount prices, according to a trader.

Both the $525 million fixed-rate term loan and the $125 million floating-rate term loan were quoted at 99¼ bid, par offered in the morning and then they moved up to 99½ bid, par ¼ offered, the trader said.

The fixed-rate piece is priced at 9¾% and was sold at 99.035, while the floating-rate piece is priced at Libor plus 550 basis points and was sold at an original issue discount of 99.

During syndication, pricing on the fixed-rate tranche firmed wide of original guidance of 9% to 9¼%, and the amount of fixed-rate debt was downsized as the floating-rate tranche was carved out of the deal based upon investor demand.

-Sara Rosenberg contributed to this report

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