Mandalay Bay mounts 11.5-point gain, lifts all casino paper; Computer Associates applauded

By Ronda Fears

Nashville, June 4 - Convertible traders said overall the market still seemed a bit weak with few real bidders playing. That said, however, there was a frenzy of buying in the casino group on the heels of a blowout quarter reported by Mandalay Resort Group.

"There were lots of names that firmed with some real trading going on but the market on whole is still cheapening a little," said a convertible dealer.

Tyco International Ltd., a routinely active name in the convertible market, got the expected lift Friday from Moody's Investors Service upgrading the credit back into investment-grade territory. The Tyco convertibles each gained about 1.5 points, traders said, while the stock gained a little shy of 1%.

Mandalay's headlines rocketed virtually all convertibles with any connection to gaming higher Friday, including Shuffle Master Inc. After the market close, however, Shuffle Master fired its chief financial officer, which could put a damper on its gain. The Shuffle Master convertibles gained about 2.25 points Friday.

Shuffle Master said CFO Gerald Koslow was fired for failing to immediately disclose his arrest for domestic disturbance in mid-April and failing to disclose the arrest in several regulatory filings. Although the termination is completely unrelated to any financial, financial reporting or SEC matters, the company said Koslow's failure to disclose the incident necessitated his immediate termination.

Players look for jumbo deal

Meanwhile, in the primary camp, banker types and fund mangers are increasingly anxious to see a steadier, heavier flow of deals. On Friday, Great Plains Energy Inc., parent to Kansas City Power & Light Co., launched a $150 million mandatory issue to price after Tuesday's close. But the market is looking for a jumbo deal to emerge from the wings.

"The next couple of weeks could be a little shaky with the Federal Reserve looming, but a company with a big jumbo deal shouldn't really be impacted by anything external. It's a matter of timing on the stock," said a convertible origination official.

"There's probably a little of uncertainty about [pricing] terms, but that is still pretty issuer-friendly, so I think whatever is out there is going to pop up sooner rather than later."

Banker types say the convertible market is still fertile ground for issuers and it still feels as if there is a lack of supply, although hedge fund managers in particular have been seeing a slight uptick in redemptions. Merrill Lynch analysts said in a report Friday that total equity inflows in April climbed to $23 billion from $16 billion in March while fixed-income funds saw net outflows of $7.5 billion in April - the largest outflow since August 2003.

Mandalay Bay floater soars

Mandalay, operator of the Mandalay Bay, Luxor, and Excalibur casinos in Las Vegas plus other casinos in Reno, rose like a phoenix roaring out of the ashes Friday, after posting blowout first quarter profits, and the betting mood spilled over into the entire gaming group.

After the close Thursday, Mandalay reported net profits of $87.3 million, or $1.30 per share, for first quarter - nearly double the $44 million, or 69 cents, netted in first quarter 2003. The results handily beat analysts' expectations as well as the company's guidance.

Revenues climbed to $729.3 million from $616.5 million, and operating cash flow rose 43% with gambling revenue alone up 18%.

"It wasn't entirely a surprise [as Mandalay said in April that it expected earnings per share higher than $1.10], but the convert being a floater, and with the interest rate climate what it is, it just turned into a bidding war," said a dealer.

He said the Mandalay convertible also draws appeal because there is a conversion ratio increase when the stock is above the $57.30 conversion price. Mandalay shares closed Friday at $60.27, having skyrocketed $5.65, or 10.34%, on the earnings.

The Mandalay convertible, which pays the three-month Libor plus 75 basis points through 2008 and then becomes an accreting zero-coupon bond, shot up 11.5 points on an outright basis to 145.5 bid, 146 offered.

Casinos at large pushed higher

In addition to the Mandalay headlines, players of the betting persuasion were already in the mood to gamble ahead of the Belmont Stakes in New York over the weekend, which could make Smarty Jones the first Triple Crown winner in 26 years. After all, as one buyside trader noted, the odds are so weighted toward Smarty Jones as the favorite, that bet won't pay much.

"If you are looking for a good bet, the horse track is not the place to be this weekend, unless, of course, there is a gigantic upset," the convertible trader said.

"I'll stick with convertibles. And, with some of the cheapening lately, these bets aren't looking as risky as they did a month ago."

If Smarty Jones wins the Belmont race, he would be the 12th winner of the Triple Crown and the first since Affirmed in 1978.

On the Mandalay excitement, all the convertible gaming paper gained ground.

Kerzner International Ltd.'s 2.375% convertible added 1 point to 96.25 bid, 96.75 offered while the stock rose 98 cents, 2.31%, to $43.40.

Caesars Entertainment Inc.'s floater, which pays the three-month Libor flat, added 0.5 point to 102.75 bid, 103 offered with the stock up 31 cents, or 2.24%, to $14.12.

Great Plains on for next week

Great Plains Energy Inc. on Friday launched a $150 million 2.6-year mandatory convertible in the Feline Prides structure for Tuesday's business.

The convertible is talked to pay a dividend of 7.75% to 8.25% with a 16% to 20% initial conversion premium.

The deal will price concurrently with 4.4 million shares of common stock. There is dividend protection, as the utility holding company pays an annual stock dividend of $1.66 per share, for a 5.55% yield.

Standard & Poor's has assigned a preliminary rating of BBB- to the mandatory, with a stable outlook. Moody's is expected to rate the issue Baa2.

Great Plains Energy shares closed Friday down 66 cents, or 2.21%, to $29.76.

Computer Associates applauded

Computer Associates International said Friday its founder and former chief executive Sanjay Kumar has decided to leave the company altogether, after having stepped down from the top spot to chief software architect, and will cease all involvement in its business effective immediately.

The move was immediately applauded, too. Computer Associates shares rose 87 cents, or 3.31%, to $27.17, and the convertibles gained 2 to 4 points. The 1.625% issue, up 4 points, ended at 149.75 bid, 150.25 offered, and the 5% issue, up 2 points, closed at 122.5 bid, 122.625 offered.

"It has become increasingly clear to me in the past few days that my continued role at CA is not helping the company's efforts to move forward," Kumar said in a news release. "I understood that my stepping down as chairman and CEO represented a break with the past, but I have reluctantly concluded that as long as I hold any position, focus on past issues and my current role will continue."

Kumar was named chief software architect in April when he stepped down as chairman and chief executive officer amid a federal probe and a guilty plea to accounting fraud by former CFO Ira Zar.

"The board is committed to reaching a settlement of the government's investigation into the company's past accounting practices as quickly as possible," said chairman Lewis Ranieri, in a news release. "We are working hard to take the remedial steps necessary to put this entire matter behind CA. Sanjay's decision to leave CA was made in that spirit."

The move comes a week after Computer Associates offered the government $10 million to settle the case that centers on early booking of $2.2 billion revenue in fiscal 2000 and 2001.

Four former executives have pleaded guilty to charges related to the matter. Kumar has not been charged and admitted no wrongdoing.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.