MTR prices to close out dull week, existing bonds up; Fiesta slates; secondary signs solid

By Paul Deckelman

New York, July 22 - MTR Restaurant Group, Inc. priced a $565 million drive-by offering of eight-year secured notes on Friday - an upsized revival of a deal which the racetrack and casino operator had shopped around the market earlier in the month, only to postpone it at that time due to market conditions.

When the new bonds hit the aftermarket, they were initially offered at higher levels, but eventually came down to trade around their issue price.

But the company's two series of existing bonds - slated to be taken out via a tender offer funded by the new-deal proceeds - were solidly higher.

MTR was the only deal pricing, and brought to a close a very quiet week which saw only a handful of deals come to market, including the offerings from SunCoke Energy Inc. and Trader Corp., both of which have firmed in the aftermarket since their respective pricings and were holding at those higher levels as the week closed out.

The junk bond forward calendar saw the addition of a $200 million secured notes deal from Fiesta Restaurant Group, Inc., which is expected to price in the coming week.

Market participants said that things would surely pick up in the week ahead, with the $2 billion behemoth of a bond deal from consumer packaging giant Reynolds Group on tap.

In the secondary market, traders said that things seemed firmer, albeit in quiet dealings typical of a summer Friday. Statistical indicators of market performance were mostly improved on both the day and the week, versus last week's slide.

Among specific secondary names, Dynegy Holdings Inc.'s bonds were being quoted higher - a counter-intuitive move, since the Houston-based power generating company got some bad news Friday, in the form of lawsuits seeking to stop its corporate restructuring, filed by angry investors.

MTR rolls the dice

The only pricing of the day came from MTR Gaming Group, which came to market with a $565 million issue of eight-year senior secured second-lien notes (B3/B-).

The bonds, carrying an 11½% coupon, priced at 97 to yield 12.096%, high yield primary-side sources said.

There had been no formal price talk heard on the quickly-shopped transaction before the deal actually came to market via sole underwriter J.P. Morgan Securities LLC.

The bonds priced around mid-afternoon Eastern Time, just hours after the company announcement that it was doing the deal. They were marketed to potential buyers on a late-morning investor call.

Friday's deal was actually an upsized revival of the $500 million eight-year offering which MTR had shopped around the market earlier this month, before announcing on July 14 that it was postponing the planned transaction due to market conditions.

One unusual feature of the MTR deal is the structure of the issue's coupon; of the 11½% interest, MTR has the option of paying 10½% as cash interest, with the other 1% on a payment-in-kind basis, providing the company gives proper advance notice to the bondholders. That PIK option will be in effect for the first two years of the issue's life. After that all interest is to be paid in cash.

The Chester, W.Va., owner of racetracks and affiliated "racinos" plans to use the proceeds from the bond offering to fund a previously announced tender offer and consent solicitation for its $125 million of outstanding 9% senior subordinated notes due 2012 and its $260 million of outstanding 12 5/8% senior secured notes due 2014, and will employ a portion of the proceeds to establish a video lottery terminal racino at its Scioto Downs track in Columbus, Ohio. However, should MTR not be able to get a license for that video slots parlor from Ohio gaming regulators by June 1 next year, it will have to repurchase $150 million of the new notes from their holders at par.

New MTR flat, old bonds get fat

Soon after the MTR bonds priced, at 97, a trader said the deal had opened up offered as high as 983/4.

However, a little while later a second trader saw them offered at 973/4, without a bid.

He said that it would be difficult to really assess how the market valued the bonds without seeing two-sided action, and suggested the bonds might work out to around 97 bid, 97¾ offered.

When two-sided markets in the new deal did finally emerge, a trader quoted them going home at 97¼ bid, 97¾ offered.

At another shop, a trader said "in the Street" they kept getting offered lower and lower.

He said that the bonds had dipped down after issue and traded into a 96¾ bid, although he acknowledged that this was just a small trade - 500 bonds ($500,000) and should not be taken as representative of the market.

He saw them going out "trading around issue."

MTR's existing bonds, on the other hand, caught a healthy bid following the pricing, since the proceeds from the sale of those bonds will be used to take them out via a tender offer.

A market source saw the company's 9% senior subordinated notes due 2012 having moved up by 4 points to 100¼ bid.

Another source who saw the bonds at 100¼ estimated that nearly $10 million of the bonds had traded, putting them up there on Junkbondland's most-actives list.

Its 12 5/8% notes due 2014 gained 1¼ points to end the session at 1063/4.

Less than $2 billion week

The MTR deal was the biggest offering of a very quiet week, and brought the week's new issuance tally to just around the $1.6 billion mark - far less than the $2.85 billion of new paper which had appeared the week before, ended July 14.

This week was on track to become the third-slowest of the year in the primary market, surpassed in that regard only by the $1.25 billion seen the week ended June 17, and the $1.05 billion which priced in the week ended Feb. 25.

Besides MTR, there was just a literal handful of new deals seen having priced. These included the week's first deal - Savannah, Ga.-based auto title lending company TitleMax Finance's upsized $60 million non-fungible add-on to its $250 million of existing 13¼% senior secured notes due 2015 which it had sold last year. That drive-by add-on priced at 107, for a yield to maturity of 11.028%, and was not seen trading around afterward.

Wednesday saw a trio of deals - from SunCoke Energy, Inc., a Lisle, Ill.-based producer of metallurgical coke, which priced a $400 million offering of 7 5/8% notes due 2019 as a scheduled forward calendar deal at par; from Canadian print and online media publisher Trader Corp., which priced $290 million of 9 7/8% senior secured notes due 2018, upsized from the originally planned $275 million, at 99.367 to yield 10%; and from Capsugel FinanceCo SCA, a Peapack, N.J.-based maker of capsules for the pharmaceutical industry which priced its €325 million of 9 7/8% notes due 2019 at par.

On Thursday, North Atlantic Trading Co., a Darien, Conn.-based tobacco company, priced a

$285 million two-part senior secured notes transaction, consisting of a $205 million tranche of 11½% five-year second lien notes that came to market at 98 to yield 12.044%, and an $80 million tranche of 19% 5.5-year third-lien notes, which priced at 97 to yield 19.916%. The unusually large and unusually structured coupon will pay 11% in cash and 8% in kind.

. Traders saw those recent new deals mostly holding to the levels seen in the aftermarket earlier in the week.

For instance, a trader on Friday quoted the SunCoke deal at 102¼ bid, 102½ offered, about the level to which those bonds had risen after their they initially began trading.

A second trader had those bonds in the morning at 102¼ bid, 102¾ offered, but said "the activity died down" to leave them at 102 bid, still well up from their par pricing level.

The trader saw Trader's 9 7/8% notes still hanging in at the higher levels to which the new bonds had moved after their Wednesday pricing, when they ended at 101 3/8 bid, 102 offered

However, the traders on Friday said that they did not see much of the new North Atlantic Trading Co. five-year notes, even though a buysider said that both tranches, which were priced at significant discounts, traded up to around par.

Fiesta joins the party

The junk bond forward calendar saw only one domestic-market deal join the forward calendar - Fiesta Restaurant Group, Inc. began a roadshow to market a proposed $200 million offering of five-year senior secured second-lien notes.

The company is scheduled to hold an investor call for potential buyers on Monday, and pricing is expected to take place during the upcoming week.

The deal is being done through Wells Fargo Securities LLC and Jefferies & Co.

Fiesta, which owns and operates the Hispanic-themed Pollo Tropical and Taco Cabana casual-dining restaurant chains, is an indirect, wholly-owned subsidiary of Carrols Restaurant Group, Inc., a major franchisee of Burger King. Earlier this year, Carrols announced plans to spin off Fiesta to its shareholders, creating two stand-alone public companies and enabling Syracuse, N.Y.-based Carrols to focus on its core Burger King business.

Part of the financial arrangements for that pending transaction is for Carrols to refinance its existing debt. Proceeds from the Fiesta bond sale and a concurrent $85 million senior credit facility being entered into by another Carrols subsidiary, Carrols LLC - a $65 million term loan and $20 million revolving credit facility - will be used to repurchase the parent company's $165 million of outstanding 9% senior subordinated notes due 2013 via tender offer announced on Friday, which will run through Aug. 18. A portion of the proceeds will be used to repay outstanding borrowings under Carrols' existing senior credit facility.

Good environment for new debt

While activity has recently been quite low in the junk market by the standards set in April and May, when the primaryside was red hot and the secondary followed suit, traders said that it appears that there is still an appetite for risk out there, especially given the kind of hefty fund flows seen in the market over the past three weeks.

With those kinds of technical factors - and junk yield still outpacing returns on most other asset classes - they expect the primaryside to continue to chug along for a while yet before the eventual summer doldrums shutdown, probably next month.

Looking at the roster of recently announced offerings, a trader opined that the M&G Finance Corp. $500 million seven-year deal that the Houston-based chemical company will be shopping around in the United States starting Monday and in Europe after that "will be fine."

He said that he had heard that consumer packaging giant Reynolds Group's $2 billion two-part offering "is spoken for now, probably over-subscribed," and he expects the price talk to tighten on that one.

He also heard that the $450 million offering of 2019 senior notes being offered by Texas-based sporting goods retailer Academy Ltd. "is going okay."

And he said that he "keep[s] hearing rumors of a potential deal" from Nashville-based hospital industry powerhouse HCA Corp. "People are speculating that it could be a couple of billion" - although it should be noted that rumors the giant healthcare provider would do a deal frequently come and go in the junk market. The company also reports quarterly results on Monday, the trader said.

Market up on day and week

Away from the new-deal precincts, traders noted that market statistical indicators, which were better on Thursday, continued to ride the wave on Friday for the most part, and were solidly up on the week, in contrast to the previous week's weakness.

A trader saw the CDX North American Series 16 HY Index about unchanged on Friday to finish at 101 7/16 bid, 101 9/16 offered, after having been up by 13/16 of a point on Thursday.

That left the index up more than a full point on the week from the 100 5/8 bid, 100 7/8 offered level seen the previous Friday, July 15.

The KDP High Yield Daily Index jumped 15 basis points on Friday to end at 75.67, on top of Thursday's 9 bps gain. Its yield moved down by 5 bps to 6.62%, after having come in by 3 bps on Thursday.

On a week-by-week basis, the late surge left the index well above the previous Friday's 75.33 finish, and its 6.75% yield.

The Merrill Lynch High Yield Master II Index showed its fourth consecutive gain on Friday, up by a solid 0.20%, on top of Thursday's 0.14% rise.

The latest gain lifted its year-date return to 6.208% on Friday from 5.996% on Thursday, and established a new peak level for 2011, eclipsing the old mark of 6.071%, which was reached back on May 20.

On a weekly basis, the index rose by 0.456%, versus its 0.055% fall the week before, which had broken a two-week winning streak. The index has now showed gains in three weeks out of the last four, as it battles back from a skid of five consecutive weeks before that, dating back to early June.

Dynegy gains despite lawsuits

Among specific non-new-deal names in the secondary market, Dynegy debt was seen powering up modestly - paradoxically those gains took place even on the news that the Houston-based energy producer was getting sued by hedge funds because of the company's $1.7 billion loan restructuring plan.

One trader said there were "a handful of trades" in the 7¾% notes due 2019, which he pegged at 71 bid, 71 3/8 offered. That compared to 70¼ bid, 70½ offered the day before.

Another trader also deemed the debt better around "71-ish," which he called up ½ point.

On Thursday, news reports began to surface that two hedge funds - Public Service Enterprise Group Inc. and LibertyView Credit Opportunities Fund LP - had filed lawsuits against Dynegy over the company's plan to secure $1.7 billion in new loans to take out old loans.

Under the plan, Dynegy would create two new entities and transfer assets to them. The funds allege that in doing so, the company is stripping assets away from other creditors.

"The value of the funds' certificates already has been damaged as a direct result of DHI's proposed gutting of the guaranty, as evidenced by the market's reaction to the announcement of the planned restructuring," LibertyView said in its complaint.

Dynegy is claiming that the lawsuits are without merit and that its planned restructuring should go forward without any obstacle.

The 7.67% notes due 2016 issued by Dynegy Danskammer, a unit which operates a power plant in upstate New York, were seen up nearly 4 points on the day, closing at 79¼ bid.

Stephanie N. Rotondo contributed to this report

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