Melco Crown halves coupon payments with $1 billion bond

The $1 billion bond is the biggest single-B high-yield bond out of Asia.
<div style="text-align: left;">Gaming tables at Melco's Altira Macau casino</div>
<div style="text-align: left;">Gaming tables at Melco's Altira Macau casino</div>

Casino company Melco Crown Entertainment tapped the dollar bond market late Tuesday with a $1 billion high-yield bond that enabled the company to halve its coupon payments.

The bonds were issued by Melco Crown Entertainment’s wholly owned subsidiary MCE Finance and the deal was the biggest single-B high-yield bond out of Asia.

The eight-year bonds, which are callable after the third year, priced to yield 5%. The proceeds will be used to buy back its existing $600 million 10.25% senior bonds due 2018 — which the company had issued back in 2010. It will also be used for the partial repayment of Rmb2.3 billion 3.75% bonds due 2013 and for the building of its casino in the Philippines.

The deal was 4.6 times covered and attracted strong demand from US investors, which were allocated 68%. This is unsurprising given that there is a well-defined gaming investor base in the US and Melco Crown Entertainment is listed on Nasdaq.

Asian investors were allocated 18% and European investors 14%. Institutional investors were allocated 83%, private banks 3% and banks 3%. In secondary, the bonds traded higher at 100/100.25, above the par reoffer.

Melco Crown runs City of Dreams, Altira Macau and some 2,000 slot machines in Macau. It is a joint venture between Australia’s Crown, led by James Packer, and Macau International Development. Lawrence Ho, the son of Macau gaming magnate Stanley Ho, is the CEO of Melco Crown.

Melco’s tender offer closes on February 25. The early-bird tender cash price is 117.08, which is close to the make-whole price. Bondholders who tender their bonds before expiration will receive 114.08.

The $600 million 2018s are callable May 15, 2014 at 105.125 and the outstanding bonds were trading at a cash price of about 116. The company’s latest $1 billion bond offers a coupon that is half that of the bond issued in 2010. But, according to one source, bondholders will get to lock in gains. And if they do not tender their bonds, they could get stuck holding illiquid bonds.

Together with the tender offer, the company is also holding a consent solicitation proposing amendments that will substantially eliminate all the restrictive covenants and many events of default.

Back in October last year, the company had sought consent from bondholders to amend covenants for the $600 million bonds due 2018. This included an amendment in the restricted payment covenant that will allow MCE Finance to provide an additional one off restricted payment of $400 million to fund the development of the Macau Studio City project.

Melco Crown has a 60% stake in Studio City, which last year tapped the bond market with an $825 million high-yield deal. However, that deal financed a greenfield project, whereas Melco is a company that is awash in cash.

Deutsche Bank, ANZ, Bank of America Merrill Lynch and Citi were joint bookrunners.

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