Despite benchmark indices showing spreads are approaching historic wides, traders report that the market remains extremely bifurcated, with better credits steadily improving and troubled credits simply unchanged.
Gaming Stays Hot As Unrated Project
Finance Deal Is Sold
The gaming sector continues to draw strong interest from investors. A $153 million unrated private placement deal by the Chukchansi Economic Development Authority was sold last Tuesday by Dresdner Kleinwort Wasserstein Grantchester. Priced at 91.476, the 14.5% notes of '09 will yield over 16%.
"I wouldn't think many other industries would have access at all in this market to fund a 'ground up' project finance deal," says Jacques Cornet, gaming analyst at CIBC World Markets.
Even super-rich secondary issues proved to have additional upside. The MGM Mirage 9.75% notes of '07 (Ba2/BB+) rose a point to 109, while the IGT 8.375% notes of '09 (Ba1/BBB-) were up a point to 109.5.
Levis Back In Style
Levi Strauss & Company saw its 11.625% notes of '08 rise to 80 on the back of the first strong earnings report in several quarters. Carla Casella, analyst at J. P. Morgan Securities, says the bonds could go as high as 90, as the strong quarter bodes well for a refinancing Levis will have to do next year. "They hit the fashion right. They got additional distribution, and good shelf placement from retailers," she says.
United Rentals Drops On Covenant Rumors
The United Rentals 10.75% notes of '08 plunged from 103.5 to 91.5, before closing at 97 last Wednesday. Rumors that the company, which rents out construction equipment, had to go back to its banks for covenant relief, are "definitely true," says one analyst. However, the analyst believes the credit story is still solid, and that economic weakness was already priced into the bonds before they dropped. If the overall high-yield market improves, the bonds will improve with it, the analyst says.