Legends prices two-part deal; junk mixed on latest Fed move; Kinder Morgan gains on pipeline news

By Paul Deckelman and Paul A. Harris

New York, Dec. 12 - Legends Gaming LLC/Legends Gaming Finance Corp. was heard by high yield syndicate sources to have successfully priced a two-part offering of senior secured cash-pay and subordinated payment-in-kind notes on Wednesday. The new bonds were not seen in aftermarket activity.

Also in the primary arena, price talk emerged on Quality Distribution Corp.'s upcoming add-on issue of floating-rate notes due 2012.

In the secondary market, players mulled over the actions of the Federal Reserve for a second consecutive session. While the central bank had done pretty much what it was expected to do on Tuesday, cutting key interest rates by 25 basis points - though most marketers wanted a bigger cut - its announcement Wednesday that it will make $40 billion available to banks via an auction process and additionally will work with the European Central Bank and other international institutions to maintain adequate liquidity to the financial system came as pretty much of a surprise to financial market denizens, and they were split as to what its impact would be.

In the areas most immediately impacted by the ongoing credit crunch, housing names such as Beazer Homes USA Inc. and Standard Pacific Corp. were seen mixed, while mortgage providers like Countrywide Financial Corp. and Residential Capital LLC were largely unchanged.

Elsewhere, Kinder Morgan's bonds were seen firmer on positive news about the big pipeline operator - its receipt of expressions of interest from potential customers of a large pipeline expansion it is building in the Northeastern United States, and the multi-billion-dollar sale of an 80% stake in another pipeline in the Midwest.

Claire's Stores Inc.'s bonds were seen off several points ahead of anticipated disappointing earnings numbers.

The junk session unfolded against the backdrop of what a high yield portfolio manager characterized as a "wild ride" in the stock market. After falling 290 points on Tuesday the Dow Jones Industrial Average shot up 270 points at the Wednesday open, the buy-sider recounted.

However the volatile session saw the Dow drop more than 110 points below its opening level before finally settling up 41 points on the day.

Legends prices $220 million

Terms emerged on a two-part deal from Legends Gaming (DiamondJacks Casinos) on Wednesday.

Issuing entities Legends Gaming, LLC, and Legend Finance Corp. priced a $160 million tranche of senior secured notes due Sept. 27, 2012 (B1/B+) at par to yield 12%. The yield came 1/8 point wide of the 11½% area price talk.

The same entities also priced a $60 million tranche of senior subordinated secured PIK notes due Dec. 27, 2012 (Caa1/CCC+) at par to yield 17%. The PIK notes yield came ¼ point beyond the wide end of the 16½% to 16¾% price talk. The PIK notes will pay a coupon of 17%, 10% of which will be payable in cash and the remainder payable in additional notes.

Jefferies & Co. ran the books for the debt refinancing deal.

A stone's throw

With the Legends Gaming deal in the mix, 2007 issuance totaled slightly more than $155.45 billion at Wednesday's close, according to Prospect News data.

That is just under $1.2 billion less than the $156.63 billion of issuance seen during the entire record setting year of 2006.

Helix Energy Solutions is marketing a $500 million two-part senior notes offering (B3/B+) via Banc of America Securities, which is expected to price early next week.

When the Helix trade clears the 2007 primary should be no more than $700 million shy of the 2006 record.

However some sell-sources have told Prospect News that the window of opportunity to price drive-by deals will likely close toward the middle part of the Dec. 17 week.

During the corresponding time frame, Dec. 13, 2006 to Dec. 19, 2006, the high yield primary market saw nearly $8 billion of issuance.

Such a scenario will not unfold this year, sources advise.

There now seems to be widespread skepticism that the 2007 primary market, so near to setting a new issuance record, will close the distance in the time remaining.

Quality Distribution talks add-on

Quality Distribution LLC could bring the 2007 primary market another $50 million closer.

On Wednesday the Tampa, Fla.-based freight company set price talk for a $50 million add-on to its three-month Libor plus 450 basis points senior floating-rate notes due Jan. 15, 2012 (Caa1/CCC) at the 93.00 area.

The books were scheduled to close at 3 p.m. ET Wednesday afternoon.

Credit Suisse is leading the deal.

The original $85 million issue priced at par in January 2005.

Legends unseen, market indicators mixed

Several traders said that they had not seen either tranche of the new Legends Gaming issue in the aftermarket Wednesday.

Back among the established issues, participants saw a generally mixed market. A trader saw the widely followed CDX junk bond performance index up ½ point at 95¾ bid, 96 offered. But the KDP High Yield Daily Index, after having been higher earlier in the day, eased 0.02 to 78.27, while its yield widened 1 bp to 8.56%. Overall market dollar volume was off by about one-third from Tuesday's levels, and declining issues narrowly led advancers.

Figuring out the Fed

One of the chief topics of conversation was what impact the latest move by the Fed would have on the junk market.

Kingman D. Penniman, the president of KDP Investment Advisors Inc. in Montpelier, Vt., called the Fed move "an important step" in the efforts to restore liquidity and stability to the financial markets. He said the central bank acted out of a need to "break the logjam of uncertainty" that was constraining liquidity.

"I think the pool that we're seeing now is intended to be able to get liquidity back into the system, while trying to ameliorate the pressure that would put on prices of assets" that might be used as collateral. "The market has understood and reacted to [the fact that] lowering interest rates by themselves is not going to solve the problem - it doesn't matter what the rates are if you can't borrow and people won't lend to you."

Penniman said the junk market - which he said "got whipsawed" on Tuesday's news of a smaller than hoped for 25 basis point cut in the Fed's key lending rates - "was pretty firm."

However he added that while participants "see this as a positive step, you're not seeing a tremendous rally." Among the factors he saw constraining any impulses to pop the champagne corks were concern over "the prospects of where we are with the economy, the expectation that the Fed still has to lower rates more going forward and the need for companies to trade according to their ultimate credit quality - and that hasn't happened yet."

So while Wednesday's market was firm, "there hasn't been a lot of euphoria on the high yield side."

Eric Rasmussen, market analyst for the Advantage Data market research service in Boston, was anything but euphoric about the latest Fed plan, dismissing it as "another short-term fix."

"I'm worried that this is just a short-term plan that will only stretch out the current financial pain we are seeing," the analyst remonstrated. "Hopefully, what this plan will do give the economy time to patch up the short-term issues and start the process of fixing the long-term issues before these 'loans' [which the Fed will make to banks] mature." However, he pointed out that "much of the problem we are currently seeing in this country was caused by excess liquidity - so aren't we hurting ourselves by trying to fix a liquidity problem with more money?"

Rasmussen said that in terms of an impact on the market, the junk market "slumped a bit after [Tuesday's] rate cuts, but [Wednesday's] liquidity-assistance plan helped revive that market early in the morning.

"However, things started to unwind during the day, as more and more people questioned the credit plan." He also said that people began focusing on important inflation data slated to be released on Thursday and Friday.

Builders mixed, lenders steady

Traders meantime saw bonds of homebuilding companies mostly mixed and mortgage lenders largely unchanged.

A trader saw Beazer Homes' 8 5/8% notes due 2011 at 78 bid, 79 offered and its 6 7/8% notes due 2015 at 72.5 bid, 73.5 offered, about unchanged from Tuesday's levels. But a market source at another desk pegged the Atlanta-based builder's 8 3/8% notes due 2012 just below 80 bid, calling them up nearly 3 points on the day.

Standard Pacific's bonds stayed in "the high 60s to the low 70s for most of the day," a trader said, seeing its 7% notes due 2015 "probably a little lower" by ½ to 1 point at 67.5 bid, 69 offered. But another trader saw the Irvine, Calif.-based builder's 9¼% notes due 2012 sliding 5 points to 45 bid, 50 offered.

Another market source saw its 5 1/8% notes due 2009 up 1½ points at 82.5 - but also saw the 91/4s down about 3 points to the 50 level.

WCI Communities Inc.'s bonds "went on a little bit of a ride" Wednesday, a trader said, quoting the problem-plagued Bonita Springs, Fla.-based builder's 6 5/8% notes due 2015 up 1 point at 51 bid, 53 offered. "There's always good volume in that name," he said, "and there was good volume today."

Elsewhere in the sector, Hollywood, Fla.-based Tousa Inc.'s 9% notes due 2010 were at 40 bid, 42 offered and its 8¼% notes due 2011 were at 44 bid, 46 offered, both up 1 point.

Among the mortgage lenders, a trader saw Residential Capital's stepped-up 8% notes due 2012 at 71 bid, 72 offered, and saw its 7½% notes due 2011at 70 bid, 71 offered, "about where they had [previously] been." He saw ResCap owner GMAC LLC's 8% bonds due 2031 at 86 bid, 87 offered, "maybe up ½ on the day, on good volume."

Another trader saw the big Minneapolis-based lender's 6 1/8% notes due 2008 - one of the issues being tendered for - at 82 bid, 83 offered, up 1 point, while its 6 7/8% notes due 2015 a point better at 69 bid, 70 offered.

A trader saw ResCap rival Countrywide Financial Corp.'s 6¼% notes due 2016 trading in a 61-64.25 range and spending most of the day at 61 bid, 62.5 offered before going out at 61.5 bid, on "a lot of volume."

Another trader saw the Calabasas, Calif.-based mortgage giant's 61/4s unchanged at 61 bid, 62 offered, while its 3¼% notes due 2008 were at 91.5 bid, 92.5 offered, up perhaps ½ point.

Kinder Morgan gains on pipeline news

Apart from credit-crunch related sectors, a market source saw Kinder Morgan Finance's 6.40% bonds due 2036 up more than 4 points on the session at 84 bid.

That rise came as the Houston-based pipeline operator announced that its Rockies Express Pipeline LLC joint venture project had received substantial non-binding expressions of interest from potential natural gas customers along the route of a planned 375-mile Northeastern expansion, which will be one of the largest U.S. pipelines upon its completion.

The company said that interested parties included natural gas producers, natural gas marketers, local distribution companies and power generators. REX plans to begin negotiating binding agreements with these potential customers, and subject to receipt of sufficient binding commitments and regulatory approvals, the pipeline extension could go into service in late 2010.

Meanwhile, Australian energy operator Babcock & Brown said that it had agreed to buy an 80% stake in MidCon, owner of the Natural Gas Pipeline Co. of America, which supplies gas to parts of Indiana and Illinois, from Kinder Morgan subsidiary Knight Inc., in a deal valued at $6.7 billion, including debt.

Claire's bonds off ahead of numbers

Elsewhere, a trader saw Claire's Stores' 9¼% bonds "getting slammed around." By the end of the day, he said, they were down 2 points at 75 bid, 76 offered.

He said that the Pembroke Pines, Fla.-based retailer is slated to release third-quarter numbers Thursday - and opined that amid a generally soft retail industry, "it looks like the earnings aren't so good."

In other issues, a trader said CHC Helicopters' 7 3/8% notes due 2014 were up 1½ points at 96 bid, 97 offered, on positive earnings results for the oilfield transportation operator. Other upsiders he saw included Spectrum Brands' 11¼% notes due 2013 at 89.5 bid, 90.5 offered, Massey Energy's 6 7/8% notes due 2013 at 96.75 bid, 97.75 offered, and Land O' Lakes' 8¾% notes due 2011 at 102 bid, 103 offered, all up 1 point.

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