Station stumbles on credit drawdown; MGM a winner; GMAC off as exchange bid languishes

By Paul Deckelman and Paul A. Harris

New York, December 22 - Station Casinos Inc. bonds were seen several points lower, hurt by the news that the Las Vegas-based operator of local-market casinos there has drawn down the remaining availability on its credit line - a development seen by analysts as a potentially ominous sign.

Sector peer MGM Mirage's bonds were meantime better, continuing to ride the momentum from last week's announcement of a sizable asset sale. Wynn Las Vegas LLC's bonds were only slightly firmer, the market's excitement about casino mogul Steve Wynn's audacious opening Monday of his glitzy new resort on the Strip offset by nervousness about whether the move may come back to haunt him.

GMAC LLC's bonds and those of 49% owner General Motors Corp. were seen mostly unchanged to lower, as investors awaited any new information on GMAC's suddenly-stalled efforts to convince bondholders to go along with its exchange offer plan, which would facilitate GMAC's planned conversion to a commercial bank.

Market indicators keep climbing

The widely followed CDX High Yield 11 index of junk bond performance, which rose ¾ point on Friday - on top of gains totaling 3 points the previous two sessions - continued to rise Monday, with a market source quoting it at 77¼ bid, 77¾ offered, up ½ point on the session. The KDP High Yield Daily Index meantime was up 34 basis points to 49.40, while yield tightened by a notable 26 bps to 15.94%.

In the broader market, advancing issues kept their lead over decliners, although they topped them by a relatively narrow margin. Overall market activity, reflected in dollar volumes, was up 8% from the pace seen in Friday's session.

A trader remarked that the better tone seen over the past few sessions could be grounded in the belief of participants that "all of these liquidations we've been having have pretty well dried up."

At another desk, a trader called the session a "lackluster day," with market activity "so light that it was ludicrous."

Yet another trader concurred that there seemed to be "not much going on - but it definitely feels like there was a better tone." He said that with the exception of Station Casinos and the automotive names "a majority of the active issues were on the plus side."

Station staggers on drawdown

He saw Station's most active issue, its 7¾% notes due 2016 drop to 19.25 bid from prior levels at 23, on volume of $12 million.

Station's 6% notes due 2012 were meantime last trading on a round-lot basis at 20.25 bid, down from 23.5 on Friday.

Another participant saw the latter bonds down 3½ points, around the 20 level.

Station on Monday said that said on Monday it had asked its lenders to draw down the remaining $257 million of its credit facility availability; it said that as of Friday, $239 million of that total had been funded.

Analysts and other observers said that Station - which recently failed to convince bondholders to go along with its effort to take out as much as $2 billion of existing bonds by offering new notes - at a steep discount to the face value of the old notes - may be headed for a restructuring of its debt, and theorized that it needed to tap the credit line in order to have cash on hand during the process.

With the failure of the exchange offer, Station is expected to negotiate with its bank lenders to avoid any anticipated covenant defaults.

Elsewhere in the gaming sector, the trader said, Harrah's Entertainment Inc.'s 7 7/8% notes due 2010 were seen up a point at 64 bid, while its 5¾% notes due 2017 were up more than a point in round-lot trading from its previous round-lot levels, although activity in both was very light. The Las Vegas-based gaming giant said that it had received tenders for $6 billion of notes during its just-ended private offers to issue up to $2.1 billion of new 10% second-priority senior secured notes in exchange for 10 series of its outstanding notes (see related story elsewhere in this issue).

Meanwhile Harrah's rival MGM's 6 5/8% notes due 2015 were up more than a point to the 62 level, a market source said, while at another desk, its recently priced 13% notes due 2013 gained 1½ points to 95.5 bid, 96.5 offered, while its 5 7/8% notes due 2014 gained 3½ points to finish at 62.5; those bonds have been climbing since the announcement around a week ago that MGM will sell its Treasure Island casino resort for $775 million.

Wynn rolls the dice

Wynn Las Vegas' 6 5/8% notes due 2014 were seen up ½ point at 74.5, although activity in the bonds was described as restrained, junk market players apparently hedging their bets ahead of the scheduled Monday night opening of Wynn's newest creation, his $2.3 billion Encore resort. The 2,034-room hotel casino complex is located on the famous Las Vegas Strip, right next to entrepreneur Steve Wynn's flagship property, the Wynn Las Vegas.

While everyone is likely to be wowed by the glitzy new gaming palace, industry watchers wonder about the wisdom of building such a gigantic new project at a time when the gaming industry is hurting badly, and several Wynn rivals, including Las Vegas Sands Corp. and Boyd Gaming Corp. have delayed expensive projects because of the industry downturn and the difficulty of getting financing in the current environment.

GMAC spins its wheels

Elsewhere, a trader saw "some activity in the short end" of GMAC's capital structure, pegging its 5 5/8% notes coming due in May at 71 bid, 73 offered, about a point better, he said.

However, he saw GMAC's 8% bonds due 2031 "dead quiet" at 33 bid, 35 offered. He said GMAC felt better because there was "some comfort" among investors that GMAC parent GM will get a much-needed bridge loan from the government.

He saw "some trading, but not a lot," in GMAC, in the absence of fresh news about its pending attempt to get bondholders to trade $38 billion of outstanding GMAC bonds and those of wholly owned subsidiary Residential Capital LLC for a lesser amount of new debt, preferred shares and cash.

As of Friday - the new deadline for early-delivery of those bonds under the offer - only about 58% of the bonds had been tendered, far less than the 75% the company needs to receive under its offer so it can raise adequate capital to meet federal requirements for becoming a bank company.

As of press time Monday evening, there had been no further update from GMAC as to whether it had again extended the deadline of the exchange offer, or whether it had decided to again amend the offer terms in order to lure wavering bondholders and get their approval for the debt swap.

Another trader saw the GMAC 8s unchanged, and saw its 5.85% notes due January 14 off ½ point at 90 bid.

GMAC's 7 7/8% notes due 2012 were pegged down 2 points at 39 bid.

One of the traders also saw GM's 7.20% notes due 2011 trading at 17 bid, well down from levels just under 21 on Friday. Its 7.70% notes due 2016 were down a deuce at 16 bid.

Cricket paper Leaps, Metro too

There was some activity going on in the wireless telecommunications sector, with gains seen in the bonds of providers Cricket Communications Inc. and MetroPCS Wireless, perhaps helped by bullish commentary about both companies - including kind words from one analyst who normally is pretty bearish on the sector.

A market source saw Cricket's 9 3/8% notes due 2014 up some 4 points at the 87 level, while MetroPCS' 9¼% notes due 2014 were also trading around 87, up 3 points on the day.

The online edition of Forbes was touting the 2009 prospects of such low-cost carriers as Cricket's corporate parent, San Diego-based Leap Wireless International Inc., and MetroPCS parent MetroPCS Communications Inc.

Ironically, back in the fall of 2007, MetroPCS made an offer to buy Leap, which the latter company rejected, causing Dallas-based Metro to scrap the idea. Even though they continued to go their separate ways after that, Leap and MetroPCS recently signed a new national roaming agreement, and Forbes noted that according to the normally bearish telecom equity analyst Chris Larsen of Credit Suisse Leap's "strong" cash position, which will allow it to fund its expansion into the Chicago, Philadelphia, Washington, D.C., and Baltimore markets without incurring additional borrowing, "could eventually make it an attractive takeover target for its larger rival."

Larsen also noted that with economic pressures, a carrier like Leap - which provides low-cost, unlimited wireless service to the metropolitan areas it serves - could make inroads by luring customers looking to cut costs away from larger, more expensive carriers, calling it "the Wal-Mart effect" - discount retailers seeing more traffic linked to economic pressures.

Forbes additionally said that analyst Michael Nelson of Stanford Group likes both Leap and MetroPCS, which also provides low-cost, unlimited wireless service, and which, like Leap, is also expanding into larger metropolitan markets like New York and Boston. Nelson says that the two carriers' pricing structures are well suited to the slow economy, and believes that as they attract customers each should increase operating income by more than 30% annually over the next three years, giving both "attractive enterprise multiples."

Also in that sector, a trader saw Sprint Nextel Corp.'s 8¾% notes due 2032 gain a point on the session to 61.5 bid, on volume of $10 million.

Emerging market wireless provider Millicom International Cellular SA's 10% notes due 2013 - a credit which "we don't see very often among the more actives" - moved up to 86.25 bid from 85 last week, on turnover of $7 million.

And he saw Toronto-based telecom equipment provider Nortel Networks Corp.'s recently hard-hit floating-rate notes due 2011 up ¾ point at 18.25 bid.

Toll trades up despite sector troubles

A trader saw Toll Brothers' 5.15% notes due 2015 rise to 73 bid from 69 previously, although he opined that "it's a little premature to be jumping into homebuilders - even though Toll has one of the better balance sheets [in the industry] - because I think the housing crisis is far from over."

Primary quiet

The sound of crickets pervaded the high-yield primary market on Monday.

However the phenomenal price moves of the two most recent junk deals continued to be the topic of conversation.

El Paso Corp.'s 12% senior unsecured notes due 2013, a $500 million issue priced at 88.909 to yield 15¼%, were at 96 bid, 98 offered on Monday, according to a market source.

Meanwhile Kansas City Southern Railway Co.'s new 13% senior unsecured notes, which priced at 88.405 to yield 16½% in a $190 million issue, were spotted Monday at 97½ bid.

"Even though these companies are paying ridiculous amounts in interest it's a cause for cautious optimism," said a high-yield syndicate official, commenting upon the upward price moves.

"Maybe the issuers could have cut those rates by another quarter of a percent if they really tried to push the accounts around, but the dealers were trying to get them over the hump, and see how they performed.

"And investors realized that these yields, for double-B names, are a pretty good deal."

Pioneers and arrows

El Paso and Kansas City Southern might pave the way for other issuers, the banker said.

"They were the pioneers of the new high-yield market. And of course pioneers usually end up with arrows in their heads.

"But someone had to do it," the banker added.

"And they did five-year deals, so it's not like they are locked up at those rates forever."

Nameless no-show

Meanwhile on Monday an expected benchmark-sized deal from an unnamed double-B rated issuer, likely out of Goldman Sachs, failed to materialize.

Two sources, one a senior syndicate source, the other a high-yield mutual fund manager, told Prospect News late last week that a deal was being discussed. However both of these sources declined to furnish the issuer name.

Late last week sell-side sources suggested that the underwriter might be keener to bring such a deal before the end of the year than the yet-to-be-identified company.

Trailing the Monday close sell-siders expressed doubts - given how quiet the market was during the opening session of the abbreviated Christmas week - that anyone would now try to "jam" a deal in before the beginning of the new year.

Harrah's announces exchange results

Harrah's Entertainment, Inc. announced in the results of its $2.1 billion debt restructuring exchange offer in a Monday press release.

The good news is that the deal was massively oversubscribed, with noteholders representing $6 billion of the company's debt securities putting in for the $2.1 billion exchange.

The bad news is that the $1.48 billion of front end debt in the exchange - $718 million of 5½% senior notes due 2010, $363 million of 7 7/8% senior subordinated notes due 2010, $72 million of 8% senior notes due 2011 and Park Place Entertainment Corp.'s $328 million of 8 1/8% senior subordinated notes due 2011 - attracted only $546 million of participation.

Taking out as much as possible of the front end maturities, the 2010 and 2011 paper, was a key goal in the exchange, market sources told Prospect News throughout the course of the deal which launched on Nov. 17.

That portion ended up seeing a rate of participation amounting to slightly less than 37%.

Of the four issues maturing in 2010 and 2011, participating holders of three series elected overwhelmingly to be exchanged for cash at $0.67 on the dollar, as opposed to new 10% second-priority senior secured notes. Over 83% of the participating holders of the 5½% senior notes due 2010 wanted cash, as did approximately 88.5% of the participating holders of the 7 7/8% senior subordinated notes due 2010, and nearly 82% of the participating holders of the 8 1/8% senior subordinated notes due 2011.

However the majority of the participating holders of the 8% senior notes due 2011 exchanged for the new second-lien paper. Only slightly more than 48% of the participating holders of that tranche wanted cash, with the majority electing to be exchanged into the second-lien notes at $0.80 on the dollar.

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