Silverton deal latest "market conditions victim"; DAE prices; housing names struggle

By Paul Deckelman and Paul A. Harris

New York, July 25 - The continued angst in the fixed-income markets growing out of the subprime mortgage lending blowup and other signs that the run of easy credit seen over most of the past year is over claimed yet another victim Wednesday, with Silverton Casino Hotel & Resort becoming the latest prospective issuer to pull an upcoming junk bond deal, citing "market conditions" as the rationale.

One deal which did manage to get done, however, was DAE Aviation Holdings, Inc., which was heard by high yield syndicate sources to have brought an issue of eight-year bonds to market - although even with a nice fate coupon, the "triple-hooks" deal had to price well below par to provide investors with enough yield to compensate them for their perceived risk - yet another manifestation of the debt market's current malaise.

Also in the primary arena, pre-deal market price talk was heard on Parallel Petroleum Corp.'s upcoming seven-year deal.

In the secondary sphere, the debt markets' woes have cut back on the amount of money being loaned out on favorable terms to homebuyers, hurting housing sales and construction. Against the latest backdrop of soft industry numbers, housing names like Hovnanian Enterprises Inc. were seen lower. Gaming names like Harrah's Entertainment were also mostly losers on the day.

With General Motors Corp. still having exposure to mortgage lending through its remaining 49% ownership stake in GMAC LLC - which does some residential loans as well as auto finance - GM 's bonds and GMAC's were seen lower across the board, in busy dealings.

Sources marked the broad high yield market slightly lower on Wednesday, despite the rally which the equity market staged, one official noted.

Primary still functions

Though the news was by no means uniformly good, the primary market amply demonstrated that it was open during the mid-week session.

Two deals were priced, albeit well beyond the price talk, while another was postponed.

DAE Aviation prices $325 million

DAE Aviation Holdings priced a $325 million issue of 11¼% eight-year senior notes (Caa2/B-) at 97.45 to yield 11¾% on Wednesday.

The yield was printed 50 basis points beyond the wide end of the 11% to 11¼% price talk.

Barclays Capital and Lehman Brothers were joint bookrunners for the acquisition financing.

A buy-side source saw the new DAE Aviation 11¼% notes due 2015 at 97½ bid, 98 offered on the break, higher than the 97.45 issue price.

However the source said that the bonds had not been actively traded.

Pool prices C$200 million

Elsewhere Wednesday Saskatchewan Wheat Pool Inc. priced a C$200 million issue of 10-year senior notes at par to yield 8½%.

The yield came 100 basis points higher than the wide end of the 7¼% to 7½% price talk.

The underwriters of the debt refinancing deal were TD Securities, RBC Dominion Securities Inc., Scotia Capital and Genuity Capital Markets.

Talking the deals

East Valley Tourist Development Authority set price talk for its restructured $290 million offering of senior secured notes (B+) on Wednesday.

The company has talked a tranche of eight-year fixed-rate notes at the 9½% area, and has withdrawn a planned tranche of seven-year floating-rate notes.

Merrill Lynch has the books.

Elsewhere Parallel Petroleum set price talk for its $150 million offering of seven-year senior notes (Caa1/B-) at 10% to 10¼%.

Jefferies & Co. and Merrill Lynch & Co. are joint bookrunners.

Both of those deals are expected to price on Thursday.

Silverton postpones

Silverton Casino Hotel & Resort postponed its $215 million offering of eight-year second mortgage notes (Caa1/B-) on Wednesday, according to market sources.

The notes were talked last Friday at 11¼% to 11½%.

Banc of America Securities LLC was the bookrunner.

Silverton became the eighth issuer to postpone a junk bond deal since June 26.

Those eight issuers pulled a combined 14 tranches totaling $5.765 billion.

Gaming names weak

Silverton Casino wasn't the only name from that gaming sector seen having problems Wednesday.

Among the sector names seen on the downside, amid a generally weak market, were French Lick Resorts & Casino LLC's 10¾% notes due 2014, which were seen down 6½ points on the session at 75 bid. Also trading off was Harrah's Operating Co. Inc.'s 5 5/8% due 2015. They were seen down some 6 points at 72.25.

Fountainbleau Las Vegas Holdings LLC's 10 ¼% notes due 2015 lost 5 points on the day, to finish at 91.5. Another 5-point loser was Shingle Springs Tribal Gaming Authority's 9 3/8% notes due 2015, which ended at 95.75. And Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were seen down more than 4 points at 88.

Bucking the trend was MGM Mirage, whose 7½% notes were seen up nearly a point at 91.5.

Homebuilders get hammered

With the subprime mortgage industry's woes continuing to weigh heavily on the homebuilders, their bonds were seen down for yet another session, with Hovnanian's 8½% notes due 2012 seen at 91.25 bid, 92.5 offered, which a trader called down 4½ points on the session. However, he also saw the Red Bank, N.J.-based builder's 6¼% notes due 2015 unchanged at 80 bid, 81 offered.

A market source saw its 6 3/8% notes due 2014 better by 1½ points at 81.

A trader saw M/I Homes' 6 7/8% notes due 2012 lower by 1½ points at 86 bid, 88 offered.

Yet, even as high yield housing names continued to struggle in the face of the latest weak data about the beleaguered industry - June existing home sales were down 3.8% and loan applications fell - Technical Olympic USA, Inc., whose bonds had fallen sharply over the previous several sessions before appearing to have bottomed out on Tuesday - were up slightly Wednesday, a trader said, pegging its 8¼% notes due 2011 about ½ point higher at 83.5 bid, 84.5 offered.

But another trader said the troubled Hollywood, Fla.-based homebuilder's 7½% notes due 2011 were down a point on the day at 57 bid, 58.5 offered.

GM, GMAC drive lower

The home-lending downturn was even seen taking its toll on the mighty General Motors - whose 49%-owned GMAC still is involved in the residential mortgage industry, aside from its position in automotive finance.

A trader saw GM's benchmark 8 3/8% notes due 2033 around 84 bid, 85 offered, while GMAC's 8% notes due 2031 hovered around 91 bid, 92 offered . The GM issue was down more than 2 points on the day, but the GMAC issue was only off about 1/8 point, tops.

A trader said that the GM bonds "continued to get clobbered" in terms of the credit default swaps contract spreads. He saw the five year CDS widen to 645-655 basis points, up from 550-580 bps previously.

And GMAC's CDS contracts were just as bad, the price rising to 400-410 bps from prior levels around 360-370.

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