MGM mauled on credit draw; Cricket leaps; new Tyson bonds head higher, Videotron holds gains

By Paul Deckelman and Paul A. Harris

New York, Feb. 27 - MGM Mirage wagered that the financial markets would understand and accept the company's motives for drawing down the remaining $842 million of its revolving credit availability - but its bondholders, and shareholders, were the big losers Friday on that sucker bet, both falling sharply on renewed market fears about the Las Vegas-based casino giant's deteriorating finances.

MGM was the largest, but by no means the only sizable loser in Junkbondland, as high yield names fell across a broad front, in line with yet another stock market decline, this one prompted by news of the latest government rescue plan for the faltering Citigroup, raising new fears of a de facto nationalization of the New York-based banking behemoth, as well as a larger-than-expected fall in the gross domestic product, the economy's key barometer. Citi's nominally investment grade-rated bonds were seen actively traded Friday at distressed junk levels off some high yield desks, along with such other ostensibly high grade financial credits like Thursday's big loser, SLM Corp. and the now split-rated Capmark Financial Group Inc., the runner-up for Thursday's booby prize.

There wasn't much upside to Friday's junk market, but one of the better names was Cricket Communications Inc., given a boost by bullish subscriber projections from corporate parent Leap Wireless International Inc.

Thursday's new deal from Tyson Foods Inc. was tasty enough for junk marketeers, who took the bonds up by several points, although that was pretty much as expected, given the sharp discount to par at which the well-upsized issue priced.

Videotron Ltd.'s new issue meantime hung onto the gains it notched on Thursday after pricing its slightly upsized new deal.

However, the split-rated deal from Williams Cos. Inc. was seen treading water, remaining just slightly above the price at which its upsized deal came to market Thursday.

Apparently exhausted after pushing out over $1 billion of new bonds in Thursday's session - the fourth such mega-day junk has seen this year, collectively accounting for over half of the roughly $8 billion of junk that's priced in 2009 - the high yield primaryside pretty much took the day off, getting itself ready for the upcoming week's anticipated pricing of a benchmark-sized issue from recent fallen angel Cemex SAB de CV, the Mexican cement producer.

Market indicators head south

A trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had fallen by 3/8 point on Thursday - continuing to slip Friday, quoting it down another ¾ point to 71½ bid, 72 offered.

The KDP High Yield Daily Index meantime slid by 37 basis points to 52.80, while its yield widened by 14 bps to 13.85%.

In the broader market, advancing issues fell behind decliners by a nearly five-to-three margin.

Overall market activity, measured by dollar-volume totals, jumped 37% from the levels seen in Thursday's session.

A trader said that Friday was "a weird day. It was quiet. The market opened on the soft side, equity-wise," amid "a lot of uncertainty."

He saw "a general lack of activity going on - a lot of people were pricing, that kind of thing. You had the new issues [Thursday], and that took a lot of the focus."

He called the market "kind of illiquid still. We didn't get much flow at all."

MGM crushed on credit drawdown

A trader saw MGM Mirage's bonds "down about 4 or 5 points" pretty much across the board on the news that the gaming company will draw down the remaining $842 million available under its $4.5 billion senior revolving credit facility.

MGM in its 8-K filing with the Securities and Exchange Commission painted the drawdown as a mark of the company's caution, foresight and prudence, saying that it "was made in light of the continuing instability in the capital markets and uncertain state of the global economy," and said the funds would go to general corporate purposes.

However, the investment community saw it as just one more admission of the company's serious financial straits that might preclude being able to use that availability down the line if it were not drawn now - a motive for several other companies to recently utilize revolver drawdowns so as to have the cash on hand rather than sitting in the credit facility.

The trader saw MGM's 6% notes coming due Oct. 1 at 69 bid, 70 offered, its 6½% Mandalay Resort Group notes due in July at 78 bid, 79 offered, and its 6 5/8% notes due 2015 at 38 bid, 39 offered.

Another market source saw the company's 8½% notes due 2010 down as much as 9 points at 46, its 7½% notes due 2016 down 5 points on the day at 40 bid, and quoted the Oct. 1 bonds as low as 65 bid, down more than 8 points, on busy trading. Its 7 5/8% notes due 2017 languished at 41 bid, while its 6¾% notes due 2013 were mired around 43.

The company's New York Stock Exchange-traded shares plunged as much as 29% on the session, before ending down 21.35%, or 95 cents, at $3.50. Volume of 8 million shares was nearly twice the norm.

Bank of America Merrill Lynch analyst Shaun Kelly warned in a research note that while the credit drawdown move "maximizes options, it implies that leverage covenants are either already in breach or likely to be so in the very near future."

All three of the major ratings agencies - Moody's Investors Service, Standard & Poor's and Fitch Ratings - were also not pleased by MGM's move and downgraded the company's debt and expressed their concerns about its ability to raise needed capital.

Fitch said in its downgrade message that "even if the company obtains waivers or amends the terms of the credit facility and is able to secure funding for City Center, Fitch believes the deterioration of Las Vegas trends and strained forward outlook indicates that the capital structure may be unsustainable."

City Center, MGM's ambitious $11 billion Las Vegas Strip development project, remains in limbo as the company and joint venture partner Dubai World try to line up the additional funding needed to complete it.

Battered financials trade down

Apart from MGM Mirage, another area of junk focus was nominally investment-grade financial names beaten down by continued investor angst over the government's rescue plan for the banking industry, such as Citigroup, whose 5% notes due 2014 were seen at 64 bid, down 3 points on the day, in busy dealings of over $70 million. While much of that trading took place among high grade investors, some junk players were also involved, although one distressed-debt trader said he thought the 5s seemed "up from [Thursday]," opining that "the bonds do better as the preferred and the equity get crushed."

That description fit Citi's shares to the proverbial "T" - its NYSE stock fell as much as 43% intraday and ended down 39.02%, or 96 cents, at $1.50. Volume of 1.6 billion shares was over seven times the average daily handle, with holders running for the exits upon hearing of the latest government bailout for the beleaguered bank, which will give Washington as much as a 36% stake in Citi, massively diluting the existing shareholders' holdings.

Sallie Mae down further

The trader saw Thursday's big loser, Sallie Mae - whose bonds slid after president Barack Obama spoke of ending government subsidies for private student loan providers - continuing to struggle, with its 5 1/8% notes due 2012 at 66 bid, 66.5 offered, down 2 points. He saw its 8.45% notes due 2018, which sank into the 70s from the 80s on Thursday, unchanged, but said "the shorter stuff has been banging around" at lower levels.

And he saw Capmark Financial's bonds - another big loser Thursday after the troubled San Mateo, Calif.-based commercial mortgage lender said it may record a pretax loss of $800 million in the fourth quarter and warned that it might breach its debt-to-earnings covenant - continuing to stumble and tumble.

He said its 8 5/8% notes due 2012, which had fallen 6 points on very heavy trading Thursday into the mid-20s, "were probably down another point or so" at 23.

Cricket leaps forward, despite loss

On the upside, a trader saw Cricket International's 9 3/8% notes due 2014 "up a point or two," around 92 bid, 93 offered, despite the wider fourth-quarter loss of $54.8 million posted by the San Diego-based cellphone operator's corporate parent, Leap Wireless.

Investors seemed more impressed by Leap's projections that it will add more than 1.5 million customers in 2009, about 1½ times its net subscriber adds for 2008.

Leap also boasted that sales jumped 21% in the quarter to $518 million, while its churn rate - the percentage of customers who cancel their service - fell sharply in the final three months of 2008.

Leap's NYSE-traded shares jumped as much as 19% during the session before ending up $2.23, or 8.96%, to $27.11, on volume of 3.2 million shares, 2½ times the usual turnover

Tyson deal triumphs

Another bright spot was found among the newly priced issues, where a trader saw Tyson Foods' new 10½% notes due 2014 "trading right around 95" for most of the day, heading home at around 94.875 bid, 95.25 offered, "up a couple of points on the day, and holding in."

A second trader saw the new bonds at 94.75 bid, 95 offered, with both levels well up from the 92.756 level at which the company had priced its deal on Thursday, to yield 12½%. The offering had been strongly upsized to a face amount of $810 million, with proceeds of $751 million, versus the $500 million originally shopped around to investors via a roadshow.

Videotron still victorious

A trader saw Videotron Ltd's new 9 7/8% notes due 2013 trade as high as the 101 bid area during the session before going out at 100.25 bid, 101 offered, off slightly from the 101 peak they hit in aftermarket trading on Thursday, but still well up from the 98.625 level at which the Montreal-based cable TV operator had priced its $260 million add-on tranche, upsized from $200 million originally.

However, another trader saw only a little slippage from Thursday's gains, pegging the bonds at 100.875 bid, 101.375 offered.

Williams continues to waffle

A trader saw the split-rated (Baa3/BB) Williams Cos. offering of 8 7/8% notes due 2020 at 99.375 bid, 99.625 offered, although he noted that at his shop, as with many other places, the bonds were being traded off the high-grade desks, since investment-grade investors took down as much as 85% of the Tulsa, Okla.-based natural gas company's bonds, leaving only about 15% for junk players.

Another trader Friday saw them having come down from those peaks to 99.25 bid, 99.75 offered.

Those trading levels, however, were only slightly above the 99.159 level at which the company priced its bonds on Thursday, upsized to $600 million from the initially shopped $500 million. Those bonds had traded as high as 99.75 bid, par offered in initial secondary dealings after their pricing.

Recent Chesapeake deal chokes

One recently priced deal which has been actively trading around since its original pricing of $1 billion in late January, and since the pricing of a $425 million add-on tranche two weeks later, has been Chesapeake Energy Corp.'s 9½% notes due 2015. The Oklahoma City-based energy exploration and production company's bonds had managed to zoom as high as par late Thursday from prior levels in a 94-95 context; however, they couldn't stay at such lofty heights for long, and tumbled Friday to as low as 93 bid, although later in the session, they had managed to climb back up to around 94.5, where they had traded much of Thursday.

A market source cautioned that much of the volatile activity in the bonds had been on relatively modest odd-lot trades not representative of the market levels.

The bonds had priced at 95.071 on Jan. 28, then had moved as high as the 99 region before the Feb. 11 add-on pricing at 97.75.

Dole seen as near-term business

There was no primary market news on Friday.

Dole Food Co. Inc.'s $500 million maximum offering of new junior-lien notes is likely to come to market in the near term, trailing lender approval of the company's revised amendment to its senior secured credit facility, market sources say.

The amendment, which initially met with lender resistance, passed with increased pricing of Libor plus 500 basis points, 50 bps higher than the company originally offered, and a 3% Libor floor, which also was increased by 25 bps.

The amendment also adds a senior-lien leverage ratio covenant.

Deutsche Bank led the amendment.

Although no announcements have been made, Deutsche Bank Securities and Banc of America Securities are expected to participate in the syndicate for the notes offer, sources say.

Proceeds from the notes would be used to refinance existing senior notes.

Other new deals are possible during the week ahead, sources say.

There was mention of a possible transaction from the energy sector for the first week in March.

"Everybody is a lot more upbeat this week than they were last week, given that Tyson got done," a banker said on Friday, referring to Tyson Foods Inc.'s upsized $810 million issue of 10½% of senior notes due 2014 (Ba3/BB) that priced on Thursday at 92.756 to yield 12½%. The deal was increased from $500 million.

Also on Thursday Videotron Ltd. priced an upsized $260 million add-on to its 9 1/8% senior notes due April 15, 2018 (Ba2/BB-) at 98.625 to yield 9.35%, cheap to the 98.50 price talk and expanded from the original $200 million.

However the Thursday session, which produced terms on the week's only deals, also brought news of a disruption to what had been an uninterrupted three-month run of steady cash flows into the high-yield mutual funds that report weekly to AMG Data Services.

AMG reported a $255.6 million outflow for the week to Feb. 25 - the first negative flow in 13 weeks.

"That was sort of expected, given the events of last week," a high-yield syndicate official said on Friday.

"There were huge market concerns throughout the week. 'Nationalization' was back in the conversation. We were trading on fear.

"Given that scenario, the last thing investors are going to do is take on more high-yield risk."

Billion dollar week

With the pricing of the above-mention Tyson Foods and Videotron deals, the two-tranche week of Feb. 23 saw slightly more than $1 billion of issuance.

It was the fourth week thus far in 2009 to see issuance of greater than $1 billion.

The biggest week to date in 2009, both in terms of dollar-amount and deal volume, was the week beginning Feb. 9 which saw $2.2 billion in five tranches - the only week of the year to top the $2 billion mark.

Year-to-date issuance to Friday's close was $8.8 billion in 18 dollar-denominated tranches, which easily tops the $8.1 billion in nine tranches that priced during the first two months of 2008.

"That's when the biggest thing people had to be worried about was the LBO backlog," one investment banker reflected nostalgically, pondering the January-February period of 2008.

By way of contrast, the first two months of 2007 saw more than $27 billion price in 84 tranches.

That was the highest dollar-amount of issuance for the January-February period going back to 2001.

However the average dollar-amount of issuance for the first two months of the years 2001 through 2007 is $20.6 billion, while the January-February deal volume during that same stretch of years is 66 tranches. The highest January-February deal volume during that period is the 106 tranches that priced during early 2004 to the end of February.

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