AmeriSourceBergen up on tenders; MGM Mirage sells upsized add-on; funds see $9.5 million inflow

By Paul Deckelman and Paul A. Harris

New York, Aug. 25 - AmeriSourceBergen Corp. bonds were seen solidly higher Thursday - particularly the company's 7¼% notes due 2012 - after the Valley Forge, Pa.-based pharmaceutical distribution services provider announced plans to tender for those notes, and for its 8 1/8% notes due 2008 as well, using the proceeds of a planned new bond issue.

Also up was Six Flags Inc., after the underperforming Number-Two U.S. theme park operator said it would seek proposals from third parties to possibly sell the company.

Overall, a market source said, junk firmed slightly on Thursday and the source gave the CDX 100 index close as 100.875 bid, 101.0 offered.

In the primary arena, besides the news about AmeriSourceBergen's big upcoming bond sale - which will total at least $800 million - Las Vegas-based casino and lodging giant MGM Mirage was seen to have had the hot hand, upsizing an opportunistically timed add-on offering to its recently priced issue of 6 5/8% notes due 2015. It was the second quickly emerging drive-by deal to come out of the gaming sector this week, following Station Casinos Inc.'s rapidly marketed issue on Tuesday.

And after trading had wrapped up for the day, market participants familiar with the weekly junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that some $9.5 million more came into the funds in the week ended Wednesday than left them - the first inflow, however small, after six consecutive weeks of net outflows, including the $196.8 million outflow seen in the week ended the previous Wednesday (Aug. 17). During that six-week stretch, outflows totaled $844.5 million, according to a Prospect News analysis of the AMG figures.

Sources said that the inflow snaps a streak of six consecutive outflows, albeit not very convincingly.

The small inflow is either a fluke, or it marks the modest beginning of yet another phase for the widely watched measure of overall junk market liquidity trends. Some indistinct meandering around in the first few weeks of the year was followed by a 15-week stretch of outflows, from mid-February through late May, during which about $6.776 billion more left the funds than came into them, according to the Prospect News analysis. Then, after a few weeks in June and early July in which the fund flows followed a zig-zag pattern, alternating inflows with outflows, the trend again turned negative around mid-July, and stayed that way up till this week.

Breaking out of that negative gridlock in early June sparked a revival of both the junk primary and secondary market from the doldrums seen at the tail end of the losing streak in late May.

Taking a longer-term approach, even with the latest week's result, outflows have now been seen in 26 weeks of the 34 since the start of the year, against only eight weekly inflows. Cumulative net outflows for the year total around $7.874 billion, according to the Prospect News analysis, down from about $7.884 billion last week.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants, since they are considered a generally reliable barometer of the overall liquidity trends - and 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 hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

MGM upsizes, prices on top of talk

Meanwhile the primary market sparked to life once again as MGM Mirage drove through with a tap of its 6 7/8% bonds due July 2015 that upsized to $375 million from $250 million, and priced on top of price talk.

MGM Mirage became the second gaming company to spring a surprise on the primary market this week, following Station Casinos on Tuesday. Both priced add-ons in drive-by deals. And both deals were led by Banc of America Securities.

On Thursday MGM Mirage priced an upsized $375 million add-on to its 6 5/8% senior notes due July 15, 2015 (Ba2/BB) at 101.375 resulting in a yield of 6.432%.

The deal, via joint bookrunners Banc of America Securities, Citigroup, Deutsche Bank Securities and Merrill Lynch, priced on top of price talk.

Proceeds were slated to repay bank debt and for general corporate purposes.

The original $500 million issue priced at par on June 9, taking the total issue size to $875 million.

One syndicate source said that the deal went well.

An investor who did not participate said that MGM had previously taken down a huge bank line to complete its $7.9 billion buyout of Mandalay Resort Group. And although the company has raised thus far $875 million in the junk bond market, the investor said, "They have a ways to go yet.

"They'll be back."

The MGM Mirage deal follows Tuesday's drive-by from Station Casinos Inc.

That gaming company priced a $150 million add-on to its 6 7/8% notes due March 1, 2016 (B1/B+) at 102.50, resulting in a yield of 6.399%.

Banc of America Securities and Deutsche Bank Securities were the bookrunners.

The pipeline

Sources continued to profess various levels of astonishment at the two drive-by deals, MGM Mirage and Station Casinos, that have thus far priced during what is ordinarily a dormant period in the high-yield new issue market.

Also sources continued to speculate that either or both of those deals could have been driven by "reverse inquiry," that is, standing orders from investors should the companies choose to issue.

One source said Thursday that there is perhaps one more drive-by remaining to be priced before Labor Day. The source did not have an issuer name to offer but said that once again Banc of America Securities is likely to be involved.

However this source did not expect the deal to show up Friday ("An August Friday? Come on!").

A couple of names did enter the pipeline on Thursday, however.

AmerisourceBergen Corp., the Valley Forge, Pa., pharmaceutical services company, will make an $800 million minimum offering of bonds via bookrunner Lehman Brothers, according to Mike Kilpatrick, vice president of corporate affairs and investor relations.

The exact size of the deal as well as the structure of the notes and the timing of the launch remain to be determined, but the deal size will be less than $1 billion.

And Bohemia, N.Y., nutritional supplements-maker NBTY, Inc. announced in a Thursday press release that it will offer a minimum of $150 million of senior subordinated notes to fund a tender via dealer manager JP Morgan, which is set to expire on Sept. 22.

MGM Mirage spikes in trading

When the new MGM Mirage 6 5/8% notes were freed for secondary dealings, a trader saw them at 101.625 bid, 101.875 offered "right out of the chute," before the bonds dropped back a bit later on to 101.5 bid, 101.75 offered, up marginally from their 101.375 issue price earlier in the session.

Amerisource Bergen jumps

Back among the existing issues, a trader said that Amerisource Bergen had "big news - they're going to take out the [existing] paper," and he saw the 71/4s as "the real mover there," rising six points to around 114 bid, 116 offered, while the 8 1/8s were 1½ to two points better at 109.5 bid, 110.5 offered.

At another desk, a market source saw the 71/4s finishing even higher, at 115.5, although he only saw that same 6-point gain, from Wednesday levels around 109.25, while also seeing the 8 1/8s up 1½ points to 109.5 from 108.

Six Flags higher on sale

Six Flags, the source said, was also "up a few points," propelled upward by the news that the Oklahoma City-based theme park operator will auction itself off to potential buyers.

He saw the company's 9 5/8% notes due 2014 and 8 7/8% notes due 2010 each pushing up to 100.75 bid from previous levels at 98.5 and 99.5, respectively, while its 9¾% notes due 2013 firmed a point to 100.5 bid.

Another trader saw the three issues "all trading on top of each other" at 100.25 bid, 102 offered, up from 98 bid, par offered earlier.

The company's New York Stock Exchange-traded shares jumped 72 cents (11.01%) to $7.26 on volume of 7.1 million, almost seven times the usual turnover.

Six Flags - trying to struggle back to profitability after a prolonged amusement park industry slump - said that sale of the whole company was the best way to provide maximum value for all shareholders - and it specifically advised those holders not to tender under a $6.50 per share partial tender offer initiated last week by the company's largest single shareholder, Washington Redskins owner Daniel Snyder. His Red Zone LLC currently owns about 11.7% of the company, and seeks to increase that stake to 34.9% - while also seeking the ouster of Six Flags chairman and chief executive officer Kieran Burke and chief financial officer James Dannhauser. Snyder says Burke and Dannhauser have to go, blaming them for the company's lackluster performance over the past few years, and saying they have ignored his suggestions for turning Six Flags around.

Six Flags, in turn, said that while Snyder's partial tender offer is an attempt to grab control of the company without giving maximum value to all shareholders, it would consider a bid for all of the stock from Red Zone, "should Mr. Snyder have a serious interest in pursuing an acquisition of the entire company."

The company's more than $2 billion of debt - carrying with it annual interest costs in the $200 million area - could conceivably stand in the way of such a development. Snyder claims that his acquisition of the whole company would trigger the forced repayment of that debt, and hopes instead to be able to exercise control of the company by ousting Burke and Dannhauser, gaining three seats on the board and running Six Flags with a minority stake, while avoiding having to repay the debt. Six Flags denies that the debt is a "poison pill" designed to discourage buyers.

However, industry analysts say that the relatively high debt load for a company that size could function as a bar to many potential buyers.

One company not expected to be a buyer is Six Flags' larger rival, industry leader Walt Disney Co., due to antitrust concerns.

Danka higher

Elsewhere, a trader saw Danka Business Systems plc's 11% notes due 2010 firming to 94 bid from 91.5 , while its 10% notes due 2008 advanced to 91.25 bid from 90. He saw no fresh news out on the London-based office equipment provider.

Bally steady

Another trader noted that Bally Total Fitness Holding Corp. had obtained a conditional extension of a waiver from the holders of its 9 7/8% notes due 2007 of its reporting requirements - however, he saw "nothing shaking" in its bonds, with the 9 7/8% notes still at 87.5 bid, 89.5 offered and its 10½% notes due 2011 "maybe a touch stronger" at 99.75 bid, 100.75 offered.

Under that extension, the Chicago-based fitness center operator would have until Nov. 30 to get its financial reports in - if Bally can also get the 10½% noteholders and its bank lenders to sign off on the extension.

Market better, GM up

A trader said that things were "pretty quiet," but the market "had a pretty decent tone." He said that it "did a little bit better on the day." On the day after Moody's Investors Service dropped both General Motors Corp. and Ford Motor Co. Into junk territory, "it looks like all the bad news is [already priced] in those issues."

He saw GM's benchmark 8 3/8% notes due 2033 up half a point at 86.75 bid, 87.25 offered. On a spread-versus Treasuries basis, he said, the bonds narrowed to 539.9 basis points over from 546 bps on Wednesday afternoon.

Charter keeps gaining

The trader saw Charter Communications Inc. bonds continuing to firm after having risen on Wednesday on news that the debt-laden St. Louis-based cable systems operator plans to exchange new bonds for about $8.4 billion of existing notes, thus extending their maturity and cutting its total debt burden by as much as $1.5 billion.

He quoted Charter's 8% notes due 2012 at 101.75 bid, 102.25 offered, up from 100.5 bid, 101.25 offered on Wednesday.

Another trader, however, saw Charter's bonds, while "still trading around actively" on Thursday, not really going anywhere price-wise.

"They're holding at higher levels and trading in the context of the market," he said, but saw no price change in Charter's 8 5/8% notes due 2009, which remained at 82 bid, 84 offered. On Wednesday, those bonds had jumped six points to get to that level.

Another trader who also saw those '09 bonds around that same level opined that Charter "looked pretty much unchanged. They had their run [Wednesday]."

Airlines quiet

Traders also saw little or no activity in airline bonds, with Northwest Airlines Corp. continuing to operate through a sixth day of a strike by nearly 4,500 mechanics, plane cleaners and custodians. No new talks were scheduled. Eagan, Minn.-based Northwest, the fourth-largest U.S. airline carrier, is using a combination of replacement mechanics, supervisory personnel and third-party contractors to keep its planes flying. A trader saw its 7 7/8% notes due 2008 unchanged at 45.

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