Service Corp., Starwood sell drive-bys; Belo on road; numbers lift MGM; funds add $26 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 5 - A pair of quickly-shopped offerings for two familiar issuers - deathcare industry leader Service Corp. International and lodging giant Starwood Hotels & Resorts Worldwide Inc. - kept the high yield primary pot percolating and popping on Wednesday.

The Starwood bonds initially firmed about a point from their issue price - but as the afternoon wore on, they dropped from that peak level to effectively end not much changed.

The new Service Corp. bonds meantime priced too late in the session for any meaningful aftermarket activity, observers said.

Elsewhere in the new-deal arena, high yield syndicate sources heard that Dallas-based television station operator Belo Corp. was hitting the road for a short marketing campaign for its upcoming issue of at least $250 million of seven-year senior notes.

Price talk was heard on a sterling-denominated offering of bonds which British bookmaker William Hill plc is expected to price during Friday's session, while primaryside participants were also awaiting another anticipated Friday pricing - from international seaborne oil transportation operator General Maritime Corp.; terms of the latter offering had been tweaked earlier in the week to give investors an additional year of call protection.

Among recently priced deals, the dollar-denominated tranche of Virgin Media Inc.'s big two-part offering, which priced on Wednesday, was seen trading as much as a point over issue.

Away from new-deal related market action, traders saw a generally lethargic market, although there was some activity in MGM Mirage, whose bonds rose after the Las Vegas-based casino giant reported third-quarter earnings -- even though it ended up posting a net loss for the period, versus a profit a year earlier. The results still beat market expectations.

Junk funds up by $26 million

As trading was winding down for the day, market participants familiar with the high yield mutual fund-flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the week ended Wednesday some $26.3 million more came into the weekly-reporting funds than left them.

While it was a small gain relative to what the market has grown accustomed to, it was nonetheless the 11th consecutive advance, and followed the $207 million cash inflow seen in the previous week, ended Wednesday, Oct. 28. It was also the 18th week in the last 19 in which inflows were seen, dating back to mid-June. Some $6.453 billion of net inflows have been seen during that stretch, according to a Prospect News analysis of the AMG figures, interrupted only by a lonely $89.9 million outflow recorded in the week ended Aug. 19.

Counting the latest week's number, the year-to-date net inflow for the weekly-reporting funds rose to $18.006 billion, according to the analysis - a new peak level for the year so far, eclipsing the old mark of $17.98 billion recorded in the Oct. 28 week.

With 2009 now well into its fourth and final quarter, inflows, including the latest weekly gain, have been seen in 39 weeks out of the 44 since the start of the year, according to the analysis, against just five outflows - the Aug. 19 retreat, a $110 million outflow in the week ended June 24, and three weeks of outflows in late February and early March, totaling $969 million. The inflows, on the other hand, include an incredible 14-week run of consecutive gains, dating from mid-March through mid-June, during which time the funds grew by a record $9.1 billion.

Such sustained inflows have helped the junk market come roaring back from last year's staggering 25%-plus loss and sharply reduced primary activity totals. Total returns so far this year totaled an eye-popping 50.895% as of Wednesday's close, according to the authoritative Merrill Lynch High Yield Master II index - marginally off from recent peak levels, but still handily beating virtually every other major investment asset class. Meanwhile, the $125.668 billion of new high yield debt issued so far this year globally, as of Wednesday's close -- $105.194 billion of it domestic - is running 76.1% ahead of the feeble pace of last year's global primary tally. Domestic new issuance is 79% ahead of its year-ago levels.

EPFR sees inflows interrupted

However, another fund-tracking service, Cambridge, Mass.-based EPFR Global, which uses a different methodology, calculated a $175million outflow for the week - which its analysts said broke a stunning string of 18 straight weeks of inflows, including the $570 million gain seen the week before. The outflow was only the second which EPFR has seen in the last 34 weeks.

The cash exodus brought the year-to-date cumulative inflow total down to $20.7 billion from $20.9 billion the week before, EPFR said.

While the EPFR junk figures most weeks point essentially in the same direction as AMG's - this week being one of the rare exceptions to that general rule -- the precise weekly and year-to-date numbers almost always differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe. Any and all cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

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 comprise less of the total monies floating around the high yield universe.

The tide turns

Despite the positive number - if barely in the black - the market saw the AMG data as evidence that the tide of inflows which has flooded the high-yield accounts with cash receded during the most recent week.

It is as close as the funds have come to a negative week since the week to Aug. 19, when they actually sustained an outflow of $89.9 million, according to a syndicate banker.

Market watchers from both the buy-side and sell-side began expecting the cash tide to turn more than a week ago. However the draining did not begin in earnest until it was too late for it to show up in AMG's weekly funds flows report, sources said Thursday.

Starwood prices $250 million

There was activity in the primary market, with two issuers, both bringing single tranches, combining to price a face amount of $400 million.

Both were Securities and Exchange Commission registered bullet deals that came quick to market.

Starwood Hotels & Resorts Worldwide Inc. priced a $250 million issue of 7.15% 10-year senior unsecured notes (Ba1/BB) at 97.559 to yield 7½%.

The deal priced at the tight end of the 7 5/8% area price talk.

Citigroup, Bank of America Merrill Lynch, Calyon Securities, RBS Securities and Scotia Capital managed the quick-to-market sale, which was priced off the investment grade desk.

The White Plains, N.Y., hotel and leisure company will use the proceeds to repay debt.

Jubilation among buy-side sources seemed to be in short supply, as the deal broke for trading.

It opened at 98 bid, 98½ offered, according to a syndicate source.

However an investor, who thought that 7 5/8% would have been a fair price, saw the deal at 97¼ bid, 98 offered.

After the close a syndicate source conceded that the new Starwood 7.15% notes due 2019 were straddling issue price. However, the banker asserted, there was plenty of demand for the deal even when the price ratcheted down to 7½% from 7 5/8%.

Naturally, when the bonds failed to trade up in the secondary, the original enthusiasm waned a bit, the banker said.

Service Corp.: small deal premium

Also on Thursday, Service Corp. International priced a $150 million issue of 8% 12-year senior bullet notes (B1/BB-) at 98.115 to yield 8 ¼%.

The yield printed on top of the price talk.

JPMorgan and Bank of America Merrill Lynch were joint bookrunners.

Proceeds will be used to help fund the acquisition of Keystone North America Inc.

The buyside exacted a "small-deal premium" in the Service Corp. transaction, a syndicate source said, and added that the premium manifested itself in the discount of not quite 2 points rather than in the yield.

A quiet Friday

London-based betting and company William Hill plc set price talk for up to £250 million of senior unsecured bearer bonds (Ba1/BB+) at the 7 3/8% area on Thursday.

The deal is expected to price on Friday.

Barclays Capital, RBS Securities and Lloyds TSB are leading the Regulation S offering.

Apart from that sterling-denominated deal it could be a quiet Friday session, sources say.

General Maritime Corp. is in the market with a restructured $300 million offering of eight-year senior unsecured notes (B3/B) that was expected to price by the end of the week.

However the roadshow could be extended into the week ahead, a sell-side source said on Thursday.

A busy week ahead

The Nov. 9 week is shaping up to be a busy one, sell-side sources said Thursday.

One banker expected to be involved in as many as five transactions, including a deal in the $500 million range from the industrial sector.

The banker had visibility on as many as four additional deals, including one that would be substantially larger than the aforementioned deal from the industrial sector.

On Thursday Belo Corp. began a brief roadshow for its $275 million offering of seven-year senior notes.

The roadshow wraps up on Tuesday, and the offering is expected to price on the same day.

J.P. Morgan Securities Inc. and Bank of America Merrill Lynch are leading the debt refinancing.

New Starwood paper trades around issue

When the new Starwood Hotels & Resorts 7.15% senior notes due 2019 were freed for secondary dealings, a trader saw the bonds having first opened at 97½ bid, 98½ offered, and then having tightened to 97½ bid, 98 offered.

At another desk, the bonds were seen having initially traded up to 98½ bid, before then dropping back to 97½ bid, 98½ offered, and then finally, 971/2-98.

A trader elsewhere pegged them at 97½ bid, 97¾ offered going out, which he said was "right there, right around the issue price."

The new Service Corp. International 8% notes due 2021 priced too late in the session, a market source said, for any aftermarket dealings.

A busy Virgin Media stays above issue price

Among recently priced issues, a trader said that Virgin Media's new dollar-denominated 8 3/8% notes due 2019 was "one of the top-volume bonds on Trace today," with over $32 million of the notes changing hands.

He saw them get as high as 99½ "plus," and as low as 99 - which put the bonds about in line with where they had finished on Wednesday, after having initially broken as high as par bid but then dropping back later that session.

The New York-based based operator of cable and phone systems in the United Kingdom had priced the $600 million issue of the notes on Wednesday at 98.364 to yield 9 1/8%.

Those dollar bonds came as part of a two-tranche, dual currency mega-deal, which also saw Virgin Media price £350 million of 8 7/8% sterling notes due 2019 at 98.401 to yield 9 1/8%

The deal was upsized from the originally planned £500 million equivalent.

Norwegian Cruise lost at sea

A trader said that he "had not seen boo" in regard to Norwegian Cruise Line's $450 million issue of 11¾% senior secured notes due 2016.

The Miami-based cruise-ship operator priced those bonds Wednesday at 98.834 to yield 12%, and while they had initially gotten as good as 99¾ bid, 100¼ when they were first freed for trading, they were seen having come back down from such peak levels to end around 98¾ bid, 99 offered.

Cott bubbles up

A trader saw Cott Beverages Inc.'s new 8 3/8% notes due 2017 at 99 3/8 bid, 100 3/8 offered in early dealings Thursday. Then, he said, "as the day went on, we saw them get as tight as 99 3/8-99½ on a couple of million."

The Toronto-based private-label soft drink bottler priced its $215 million issue - upsized from the originally planned $200 million on Tuesday at 98.575 to yield 8 5/8%. When they were freed for aftermarket dealings, they rose to levels above 99 bid, and stayed there.

New Colt bonds seen higher

And the trader saw Hartford, Conn.-based gunsmith Colt Defense LLC's $250 million of 8¾% senior notes due 2017 trading at 99¼ bid, 100¾ offered, "a little wide," in morning dealings, before the issue tightened up some to 99¾ bid, 100¾ offered.

He said he "saw it a couple of times in the morning, but later in the day, we just didn't see much of it."

Colt priced the bonds on Tuesday at 98.591 to yield 9%.

Market indicators seen firmer

Back among the existing bonds not connected with the new-deal market, a trader saw the CDX Series 13 index up 3/8 point on Thursday at 92 5/8 bid, 93 1/8 offered, after having risen ¾ point on Wednesday.

Meanwhile, the KDP High Yield Daily Index rose by 12 basis points on Thursday to end at 69.39, after having gained 13 bps in Wednesday's dealings. Its yield narrowed by 4 bps to 8.69%, matching the tightening seen in the previous session.

In the broader market, advancing issues held their lead over decliners for a sixth consecutive session on Thursday, strengthening their lead to a margin of some eight to five.

Overall market activity, as measured by dollar-volume levels, slid by 31% from Wednesday's pace.

"It seems like it was all equities today," a trader said, referring to the busy activity in stocks, which were spurred on by less onerous-than feared data from the government on new jobless claims in the latest week, as well as bullish guidance from high-tech bellwether Cisco Systems Inc. That sent the Dow Jones Industrial Average up more than 200 points on the day to push the market measure back above the psychologically potent 10,000 mark for the first time in two weeks.

A second trader said there was "nothing too exciting" going on, "nothing event driven."

A third termed Thursday "a very dull day."

Nothing the small inflow reported by AMG, he suggested that although "there was no cash out" of the high yield funds, the inflow was "only $26 million, so that's sort of fading."

He said that "nobody seemed to be pressed to do anything aggressively one way or the other, right now

"Nobody is rushing to sell something, or hit bids on paper. I don't see any people really looking to rush to spend money, and the [forward] calendar seems to take up what they have at a fast enough rate.

"We're kinda stuck for the moment."

MGM Mirage stronger after numbers

Las Vegas-based casino heavyweight MGM Mirage reported its third-quarter earnings during the day's session, which resulted in its debt trading higher, according to traders.

"On the whole," a trader said, "they traded up 3 points, but then backed off a point at the end of the day."

However, a market source quoted MGM's 6 5/8% notes due 2015 having gained more than 3 points at 77, while its 7 5/8% notes due 2017 were also at the 77 level, up 4 points on the day

At another desk, a trader said "everything [MGM] was up a point or two," placing its 8½% notes due 2010 around 993/4, on $20 million traded.

The trader also saw about $20 million of the 6¾% notes due 2013 trading around 83.5, while the 10 3/8% notes due 2015 closed at 89.5 bid, 90 offered, also on $20 million traded.

At another desk, a trader said MGM "traded up a few points in the morning, but I think it came back in this afternoon."

The trader said the 6¾% notes due 2012 started around 83, moved up as high as 86, before coming back to end around 85.

He said it was a "similar story" with the rest of the structure. The 7 5/8% notes due 2017, for example, hit a high of 77 before closing at 75.5 bid, 76.5 offered. That compared with levels around 73.5 on Wednesday.

The 7½% notes due 2016 meanwhile ended at 76 bid, 77 offered.

MGM's term loan was also better in trading following the company's quarterly earnings announcement.

One trader had the term loan quoted at 90 bid, 91 offered, up about half a point on the day, and a second trader had the term loan quoted at 90.75 bid, 91.75 offered, up from 89.25 bid, 90.25 offered.

For the third quarter, MGM Mirage reported a net loss of $750 million, or $1.70 per share, compared with net income of $61 million, or $0.22 per share, in the prior year.

The company said that results were affected by non-cash impairment charges totaling $1.17 billion, or $1.72 loss per diluted share net of tax, including a pre-tax non-cash impairment charge of $956 million related to its investment in CityCenter and a pre-tax non-cash charge of $203 million related to impairment of CityCenter's residential real estate under development.

Revenues for the quarter were $1.53 billion, compared with $1.79 billion in the third quarter of 2008.

Property EBITDA was $415 million in the quarter, down 12$ from 2008, and EBITDA was negative $793 million, compared with positive $442 million last year.

"We continue to show sequential improvement in our operating results over the course of 2009," said Jim Murren, chairman and chief executive officer, in the earnings release. "Property EBITDA on a comparable basis increased from $379 million in the second quarter to $415 million in the third quarter with sequential improvement in our margins as well - 25% in the second quarter increasing to 27% in the third quarter.

"We continue to earn occupancy through our superior assets and focus on the customer, resulting in increased market share."

Also on Thursday, MGM Mirage revealed that it amended its senior credit facility on Wednesday to allow for the issuance of additional unsecured debt and equity.

Proceeds from the unsecured debt will be used to refinance certain existing debt so long as the maturity of the newly issued debt is not earlier than the maturity of the debt being refinanced or six months after the date the senior credit facility is set to mature.

In addition to the refinancing debt, the company can issue up to $1 billion of other unsecured debt, provided that 50% of the net cash proceeds over $250 million be used to permanently reduce outstanding credit facility balances.

With any equity offering, 50% of the net cash proceeds over $500 million must be applied to reduce outstanding bank debt.

At Sept. 30, the company had approximately $4.3 billion of borrowings outstanding under its credit facility with available borrowings of $1.4 billion. The company's cash balance was $897 million.

Stephanie N. Rotondo and Sara Rosenberg contributed to this report.

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