Gaming leads 'mesmerized' market lower; energy gains, but not Tesoro; Freescale leads techs down

By Paul Deckelman and Paul A. Harris

New York, July 11 - Gaming bonds took a beating for a second consecutive session Friday, as investors continued to react negatively to numbers released Thursday indicating that gaming revenues fell off in May in Nevada and in June in Atlantic City. Notable losers included Tropicana Entertainment LLC, Trump Entertainment Resorts Inc., MGM Mirage and Station Casinos Inc.

Retailing names were also lower, including Rite Aid Corp. and Neiman Marcus Group Inc.

On the upside - and there wasn't very much of it - energy-related credits like Pride International Inc. and Massey Energy Co. were seen better - but that didn't help refiner Tesoro Corp., whose bonds fell several points.

Pilgrim's Pride Corp.'s bonds were seen better for a second session, helped by bullish chicken-market data by the Agriculture Department. General Motors Corp.'s bonds were seen holding steady, no small feat in a generally "down" market.

Little was going on in the primary market.

But for the most part, traders said, high yield was relatively lightly traded. Several people each independently characterized junk players as largely "mesmerized" by the continuing carnage in the equity market, their attention particularly absorbed by the trainwreck that government-sponsored mortgage concerns Fannie Mae and Freddie Mac have turned into.

Market indicators mostly lower

A trader said that the widely followed CDX junk bond performance index was up around 1/8 to ¼ point firmer on Friday, quoting it at around 92½ bid, 92¾ offered. However, the KDP High Yield Daily Index dropped by 27 basis points to end at 71.08, while its yield widened by 6 bps to 10.52%.

In the broader market, advancing issues lagged behind decliners by a better than five-to-three margin. Activity, represented by dollar volume, fell by 24% from the already-diminished levels seen in Thursday's session.

Equity debacle is main focus

"Everyone was just mesmerized by the equity market," a trader said, while another said that he was "almost bored to tears - all the news w as happening on the equity side. People were mesmerized watching the Dow fall more than 200 points" - although it eventually did cut that loss to finish down 128.48 points at 11,100 - "and everything going on with Fannie Mae and Freddie Mac.

"It was unsettling - but in our market, there was relatively very little on my pad."

"It was just the same old crap," another trader said. "Things were all over the place. "

He said that "actually, the corporate [bond] market did better on the day, with all of this other stuff going on, which didn't make any sense."

He reiterated: "It doesn't make any sense that the world is coming to an end - but corporate credit is going to do better." He said that stocks "keep going down in one area, but the economy is doing fine in another area. What sense does that make? Am I missing something?"

Agreeing with the notion that everyone is looking for that elusive sweet spot, that safe haven that will enable investors to ride out the current troubles, he said: "People keep bailing out of one thing and into another to keep from being in the one that's going down," sort of like going from one lifeboat to another.

However, yet another trader said that from where he sat, "there was nothing in a positive realm."

Essentially, the first trader said, "the mindset out there was 'why should I do anything today?' The market looked like it was in freefall, especially in the weaker sectors."

Gaming craps out

Chief among these was gaming, which has slid badly over the past two sessions.

The sector was already on shaky ground, hit hard in recent weeks and months by the double whammy of higher fuel prices - which has made flying to a place like Las Vegas or the Mississippi Gulf Coast or driving down to Atlantic City considerably more expensive than it used to be - along with the deteriorating economy, which has convinced consumers to cut down on all but the most necessary spending, a category which for most people doesn't include paying big bucks to stay in a fancy hotel and perhaps lose hundreds, or even thousands of dollars on the roll of a pair of dice or the spin of a roulette wheel. Then on Thursday, there was a new double-whammy-Nevada gaming authorities reported a 16% drop in May gaming revenues versus a year earlier and their New Jersey counterparts said that June revenues from the Atlantic City casinos had likewise slid about 11% year-over-year - and the race to the bottom was on.

A trader said the sector "took a follow-up beating" Friday after Thursday's retreat. He saw Station Casinos' 6 7/8% notes due 2016, which ended around 49 bid on Thursday, falling as low as 42 bid, 44 offered in Friday's activity, before coming back from those lows to go out at 44.

He saw the company's 7¾% notes trading in a range around 74.

The trader saw Harrah's Entertainment Inc.'s 10¾% notes at 76 bid, 78 offered, "a little off the bottom," while MGM Mirage's 5 7/8% notes due 2014, 6 7/8% notes due 2016 and 7 5/8% notes due 2017 were all offered around 79.

Another trader saw the casino bonds "down 2 to 4 points today," pegging the Trump Entertainment Holdings' 8½% notes due 2015 off 2 points at 53 bid, 55 offered, while Station Casinos' 6 7/8s lost 3 points to end at 43.5 bid, 45.5 offered.

He also saw Wynn Las Vegas LLC's 6 5/8% notes due 2014 down a deuce at 86 bid, 87 offered. The trader said that the only thing keeping the loss in Las Vegas-based Wynn's bonds from getting any bigger was that the company's casino in Macau - less dependent upon American players than its Nevada resort or the mostly domestic casinos of its rivals - turned in relatively decent numbers.

A market source saw Isle of Capri Casinos Inc.'s 7% notes due 2014 down 2½ points to the 68 level, while Harrah's Operating Inc.'s 5¾% notes due 2017 were down 1 point at 46. Harrah's 8 1/8% notes due 2011, originally issued by its forerunner, Caesar's Entertainment, slid some 3 points to the 75 level. Boyd Gaming Corp.'s 7¾% notes due 2012 likewise lost 3 points to end around 78. But the biggest slide was in Tropicana's 9 5/8% notes due 2014, which tumbled more than 7 points down to the 38 level.

"They've got a lot of work to do," a trader said of the gaming companies. "The guys that levered up - the Station Casinos and the Harrah's - when they levered up, it took the market up a whole multiple at the very top. They levered up as much as they could." Now that things have suddenly turned sour for them, he said, "whatever we thought was the worst case at that time, we've exceeded it."

He said that the revenue numbers that came out of Nevada and New Jersey this past week "are bound not to get better" in the near term "as oil prices stay high and the economy like it is."

He also noted that companies like Harrah's and MGM Mirage "tried to turn themselves from just gaming companies into destination resorts," which is a whole different business with different dynamics. While traditionally, "sin" companies like gaming (as well as alcohol and tobacco) were thought to be non-cyclical and essentially recession-proof, he noted that "they were recession proof when they were dependent [solely] on gambling addicts. Now that they're trying to get mom and the whole family out there, it's a different story."

Retailers in retreat

A trader said that "the retailers were not much better" - another area hard hit by consumers' sudden reluctance to spend money. He saw Bon-Ton Stores Inc.'s 10¼% notes due 2014 down a point to 59 and "even Neiman Marcus" - the pricy, upscale department-store operator - was struggling, its 9% notes due 2015 were at 95.75 bid, 96 offered, unchanged at best. Another market source saw those bonds down ½ point around the 96 level.

Rite Aid's 8 5/8% notes due 2015 were seen down almost a full point at 64.5 bid. The Camp Hill, Pa.-based drugstore chain operator's 10 3/8% notes due 2016 were seen actively traded at just under 91.5, and its 7½% notes due 2017 hovered just a shade above 80, Michaels Stores Inc.'s 10% notes due 2014 finished just below 84, a market source said, while Toys 'R' Us Inc.'s 7 7/8% notes due 2013 closed around 80. Rent-A-Center Inc.'s 7½% notes due 2010 hung around 96.75.

Pockets of strength

Here and there the market saw some relative strength. A trader said that "there are still names" that did not share in the overall downturn. "Better names, and sectors where there's not as much perceived risk, were unchanged."

He saw the recently priced B/E Aerospace Inc. 8½% notes due 2018 - the Wellington, Fla.-based aircraft interior components company sold an upsized $600 million of the bonds at par on June 27 - pretty much unchanged at 100.375 bid, 100.875 offered.

He also said that healthcare paper was unchanged to up a little bit. A source at another desk saw Tenet Healthcare Corp.'s 6 3/8% notes due 2011 slightly firmer at around the 98 bid level.

Energy up with oil

With oil prices at record highs, above $147 a barrel, and prices for other forms of energy, like natural gas or coal, also at or near their recent highs, energy-related credits were generally seen doing well.

A market source saw Newfield Exploration Co.'s 6 5/8% notes due 2016 a little firmer, above 93, while Whiting Petroleum Corp.'s 7% notes due 2014 were almost at the 98 level. Oilfield service company Pride International's 7 3/8% notes due 2014 firmed slightly to just above par, while among the non-oil names, coal producer Massey's 6 7/8% notes due 2013 improved to above 97.

Tesoro eases

But an energy name which was a notable laggard was San Antonio-based petroleum refiner and marketer Tesoro, although no fresh news was seen out on the company.

A trader quoted its 6½% notes due2017 down 2 points at 84 bid, 85 offered, while its 6 5/8% notes due 2015 were likewise off by a pair at 87.

GM, Ford hang in there

A trader saw the big automotive benchmark bonds pretty much unchanged, with General Motors's 8 3/8% bonds due 2033 at 54 bid, 55 offered and Ford's 7.45% bonds due 2031 at 54.5 bid, 55.5 offered, and he noted that the New York Stock Exchange-traded shares of both companies were up on the day, perhaps drawing a little strength from GM leadership's vigorous denials Thursday of speculation that the Detroit giant might have to file for bankruptcy protection somewhere down the line.

A market source at another desk saw the GM benchmarks actively traded at just below 55, calling them up 1¼ points on the day, while Ford's financing arm, Ford Motor Credit Co.'s 7 3/8% notes due 2009 were ahead by nearly 1½ points, also in busy dealings, at around the 93.5 level.

Pilgrim's Pride extends gain

Another upsider was Pilgrim's Pride, whose 8 3/8% notes due 2017 were seen by a market source up ½ point to 79 bid, on top of the gains which the Pittsburg, Tex.-based poultry producer's bonds had notched on Thursday.

Investors were apparently reacting to a U.S. Department of Agriculture report indicating that Pilgrim's Pride and other poultry company's had recently cut back on the number of eggs ready to be hatched in hatcheries, versus a year ago, by around 4%. Fewer eggs now mean fewer chickens later - something industry analysts see as potentially boosting chicken prices, and profits, down the road.

Generally speaking though, Friday's market - indeed, like pretty much the whole week - was the kind of session that had participants tearing their hair out.

"Luckily," one of the traders said, "we had a very productive day - but if you're not careful, you'll just sit here and be mesmerized by all of this stuff - which is not at all productive. I think you're better off just deciding what you're going to do, do it, [reconcile] yourself [to the fact that it's probably going to be wrong" - here he laughed - "and just go on and try to do something productive" the next session.

Primary quiet

The high yield primary market was shut out during the post-Independence Day week, with no issues pricing.

One high-yield syndicate official said that it was the first time the primary had seen zero issuance since the week ending March 21.

The source marked the CDX High Yield 10 index flat and the day, and said that the primary appears to have hit a slow patch.

"For the time being it's going to be pretty quiet unless the markets improve materially in the near term," the official said.

"There are a few deals on the forward calendar, and if they do well you might see a few more deals showing up."

IAC deals

The July 14 week gets underway with three offerings slated to price in the early to middle part of the period.

All three are related to the spin offs of HSN, Inc., Interval Leisure Group, Inc. and Ticketmaster from Barry Diller's IAC/InterActiveCorp.

Ticketmaster is marketing a $400 million offering of eight-year senior notes via JP Morgan, Merrill Lynch and Banc of America Securities.

Interval Acquisition Corp. is shopping a $300 million offering of eight-year senior notes (B1/BB), via left bookrunner Morgan Stanley and joint bookrunners Barclays Capital and Wachovia Securities.

And HSN, Inc., formerly the Home Shopping Network, is in the market with a $250 million offering of eight-year senior notes via Banc of America Securities, JP Morgan and Morgan Stanley.

No price talk had surfaced by Friday's close, according to market sources.

Day-to-day deals

Meanwhile a trio of deals carried over from the pre-Independence day week - all three of them seen as "opportunistic" debt refinancings - will carry over into the July 14 week, sources say.

Ferro Corp. is in the market with a $200 million offering of eight-year senior notes (B2) via Credit Suisse, Citigroup and JP Morgan, with most of the proceeds going to fund the tender for its 9 1/8% senior notes due 2009. Price talk is 8¾% to 9%.

Meanwhile Ferrellgas, LP and Ferrellgas Finance Corp. have been marketing a $250 million offering of notes mirroring the company's existing 6¾% senior notes due May 1, 2014 (Ba3/B+).

Banc of America Securities LLC and JP Morgan are joint bookrunners for that deal, proceeds from which are slated to term out the company's revolver. No official price talk has surfaced.

The third of the trio of deals pushed forward from last week is AEI's $250 million offering 10-year senior bullet notes (B2/B), a debt refinancing via Credit Suisse. The notes have been talked at the 10¼% area, and are being simultaneously marketed to high-yield and emerging markets accounts. One informed source reckoned that the split between high-yield and EM interest is roughly 50-50.

Sources say the status of these deals remains "day-to-day" as the issuers wait for capital markets volatility to subside.

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