Gaming bonds ease as Mandalay, MGM Grand warn on earnings, Cascades deal emerges

By Paul Deckelman and Paul A. Harris

New York, Jan. 8 - Gaming industry bonds, which have run up smartly over the past several months and mostly trade at a premium to par, proved to be a losing hand on Wednesday, as the sector retreated after MGM Mirage Inc. and Mandalay Resort Group both issued earnings warnings. Elsewhere, merchant energy producer bonds continued to bask in the reflected glory of one of their number, Dynegy Inc., whose bonds shot up solidly on Tuesday and whose stock also jumped, after it released optimistic earnings projections and said it was continuing to pare down debt.

In the primary market Cascades Inc. announced it will come a fortnight hence with $325 million of new bonds.

Mandalay Bay's 9 3/8% notes due 2010 were quoted down a 1¼ points at 107.25, after the Las Vegas based casino operator warned that "Softer-than-expected results on the Las Vegas Strip over the holidays, and a low win percentage on table games at Mandalay Bay [the company's flagship property], would cause earnings per share of closer to 10 cents than to the prevalent analysts' estimates of 20 cents for the fourth quarter ending Jan. 31."

In addition to the weaker-than-expected performance during the holiday season, demand on the Vegas Strip so far this month has been slow. Besides its Mandalay Bay property on the Strip, the company also owns the Egyptian pyramid-themed Luxor there.

A trader said that after Mandalay Bay and MGM Grand issued their warnings, "offers were down a point" among the gamers and "bids probably down two."

He saw Mandalay Bay's 9¼% notes quoted at around 104 bid, and its 10¼% notes due 2007, which had been at 110 bid/111 offered Tuesday, were seen late Wednesday offered at 110 with no bids.

Mandalay Bay's shares meantime dropped $3.78 (12.28%) to $27.01, on New York Stock Exchange volume of 5.16 million shares, over five times the norm.

MGM Grand also warned investors that it was likely to crap out, saying that it anticipates fourth-quarter earnings per share to be "below the average estimate" compiled by analysts. Wall Street has been projecting earnings of 43 cents per share, but the Las Vegas gaming company said it expects per-share net in the 24-27 cent range.

That caused the stock to swoon $3.73 (11.43%) to $28.89 on volume of about eight million shares - eight times the norm.

The company's bonds, in turn were seen lower, with the 8 3/8% notes due 2011 down a 1 3/8 point at 106.75 bid.

It blamed the anticipated lower results on "ongoing weakness in the U.S. economy and its continued impact on high-end domestic customers as well as a lower table games hold percentage over the late-December holiday period as compared to the prior year."

Those negative forecasts pushed the whole gaming group lower - particularly those with major operations in Las Vegas, with Venetian Casino's 11% notes due 2010 seen having fallen a point to 103.5 bid. Park Place Entertainment Corp.'s 9 3/8% notes due 2007 were nearly a full point lower at 106 bid. Boyd Gaming's 9¼% notes due 2009 eased to 107 bid/108.5 offered, from 108 bid/109 offered previously.

The trader said he didn't see the recently issued Wynn Gaming bonds, which he said was unexpected, given that the company is betting a billion dollars of its investors' money on the new Le Reve resort, under construction on the Strip with an expected opening in the spring of 2005.

With the Vegas gamers all rolling snake-eyes Wednesday, he said that one exception to the general sector trend was Trump Casinos, which operates in Atlantic City and a Chicago-area riverboat, but which has no Vegas exposure. He saw the Trump A.C. 11¼% first mortgage notes due 2006 "hanging in" at 81 bid/82 offered. "I imagine they'll continue to try to get that paper up in front of the Trump Castle deal" (Trump is heard trying to revive a $470 million bond offer shelved last spring, with part of the proceeds expected to be used to take out debt associated with the company's Trump Castle property).

Outside of the gamers, a trader said "it was another day of stuff trading up across the board," naming the telecom and retailing sectors as stronger.

He also saw the merchant energy players - who had climbed Tuesday on the coattails of Dynegy's favorable news - continuing to firm. Calpine Corp. was "pretty strong, in the low to mid-50s" for its 2008 and 2011 paper, "up a couple." At another desk, Calpine's 8½%notes due 2011 were quoted as having firmed to 53.5 bid from 51.25 on Tuesday, while AES Corp.'s 8 3/8% notes due 2007 were three points higher, at 49 bid.

The trader also saw Williams Cos. paper five points higher, but saw Dynegy itself - which had jumped nearly 20 points on Tuesday, holding steady, its 7 1/8% notes due 2011 at 71 bid.

Another trader said that the market was "generally higher" although it came off its peak levels lat in the day. "It was well bid for - but even the recent stalwarts, like the phone directory publishers and the auto [parts and sales] sectors that have run up came off.

He specifically saw Nextel Communications Inc.'s debt up half a point to three-quarters, on an announcement that the wireless operator expects strong results for 2003, and expects to generate free cash flow for the second consecutive quarter in the fourth quarter.

Nextel's benchmark 9 3/8% notes due 2009 firmed to 95.5 bid.

After two days that generated one new deal apiece the hump day of the Jan. 6 week produced a "pretty quiet" session in the high-yield primary market.

That quiet would have been totally undisrupted had it not been for a single sneeze from north of the border, as Quebec tissue-maker Cascades announced it will come a fortnight hence with $325 million.

"We're just getting back from the holidays here," one sell-side official commented when Prospect News asked whether Wednesday's session seemed uncharacteristically quiet.

"Things should really start kicking off until next week.

"And I don't think it's going to come too heavy," this source added. "I just don't think that there are that many companies out there that need to refinance at this point. A lot of the very good companies came over the last six months and pushed out their maturity dates.

"I think you're going to see a steady new issuance this year but I don't think you're going to have any $8 billion or $9 billion months."

This source said that the first month of 2003 in the new issuance market could easily fall short of expectations voiced by some on the sell-side. This official expects new issuance totaling $3-$4 billion during the remainder of January, with deals announced at a moderate pace predicated by "a few drive-bys."

"Some people expect January to be big," the sell-sider added. "January 2001 was big because Charter came with $1.5 billion two days into the year. In fact the last three years in a row Charter was either the first or second issuer of the year to come to market. Needless to say they're not coming this year."

Asked about reports that issuers and their underwriters might be feeling pressure to price deals before the Jan. 27 deadline for the United Nations weapons inspectors in Iraq to file a report on their initial findings - a report that some speculate could trigger military action from U.S. and British forces now massing in the Middle East - this sell-side source did not think it a likely scenario.

"I think the war is completely priced into the high-yield market," the official commented. "Unless it goes disastrously wrong high yield is not going to be affected."

The only shred of news heard in the primary market Wednesday held that the roadshow is expected to begin Jan. 22 on Cascades' $325 million of new high-yield notes, although no underwriters, maturities or structures were heard.

A further $125 million of the notes could be issued in an exchange offer for Cascades Boxboard Group Inc.'s 8 3/8% senior notes due 2007.

The issuer is a Kingsey Falls, Quebec-based manufacturer of packaging products, tissue paper and specialized fine papers announced that proceeds of the new deal, in conjunction with a new C$500 million revolver, will be used to refinance bank debt.

© 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.