Circus sells debt at 9.25 percent

Wednesday, Nov. 18, 1998 | 11:26 a.m.

Circus Circus Enterprises Inc. of Las Vegas dipped into the debt market Tuesday, selling $275 million of senior subordinated notes yielding 9.25 percent.

The seven-year notes were priced 450 basis points above comparable U.S. Treasuries and about 2 percentage points above the average yield of the casino company's existing debt.

In a statement issued late Tuesday, Circus said proceeds from the sale would be used "to repay a portion of the company's borrowings under its revolving-credit facility."

As of July 31, Circus had $2.03 billion of long-term debt outstanding with interest rates ranging from 5.8 percent to 7.625 percent. About $1.4 billion of the total yields 6.5 percent or lower.

The company also had $182.2 million of current liabilities and $155.7 million of current assets, leaving a working capital deficit of $26.5 million.

The company's offering memorandum said proceeds from the sale could be used for capital spending, share repurchases, working capital or repayment of outstanding debt.

The higher yield on the new issue, though, makes it unlikely the company would use the $275 million to refinance lower-cost debt. One bond analyst said Circus may want to keep some of the money in reserve should the opening of Mandalay Bay next spring generate lower-than-expected new business.

Circus executives couldn't be reached for comment Tuesday or today.

The Circus sale closed Tuesday before the Federal Reserve Board cut two key interest rates in an apparent bid to stem the widening of spreads between corporate bonds and Treasuries. The trend has prompted some borrowers to issue new debt sooner than expected to avoid the threat of higher interest expenses.

Several leading banks quickly followed the Fed's action by trimming their prime lending rates to 7.75 percent from 8 percent. The prime rate is what banks charge for loans to their most creditworthy corporate borrowers.