Fleming ends rumors with Chapter 11 filing; Air Canada down after bankruptcy filing

By Carlise Newman

Chicago, April 1 - The widely-expected news that Fleming Cos. Inc. had filed for Chapter 11 bankruptcy protection sparked some light selling in the company's bonds Tuesday, but many investors waited for details on the size of the company's debtor-in-possession financing, seen as a good clue as to how quickly Fleming may emerge. In the energy sector, Reliant Energy Inc. and CMS Energy Inc. were firmer, as was Calpine Corp. Centennial Communications Corp. was also seen trudging higher.

American Airlines remained level after a second day of avoiding a bankruptcy filing. Air Canada, however, was not so lucky; the company, which many had thought would escape financial disaster, filed for bankruptcy protection in court in Toronto.

Lewisville, Tex.-based Fleming on Tuesday made a voluntary Chapter 11 filing in the U.S. Bankruptcy Code in Wilmington, Del, saying it intends to use the Chapter 11 process to restructure its business operations and finances.

The national food wholesaler is currently involved in negotiations with Deutsche Bank and JPMorgan over roughly $150 million of debtor-in-possession financing, according to a syndicate source. Deutsche and JPMorgan have also agreed to provide an interim funding commitment of $50 million until negotiations on the DIP are completed. These two banks were the arrangers for the company's prior credit facility.

Fleming filed three months after Kmart Corp. ended a major supply agreement with the consumer-goods wholesaler.

The company's bonds were not as active as expected. Traders quoted the 10 1/8% senior notes at 20 bid/21 offered, down from Monday's close of 19 bid/21 offered.

"Today wasn't so bad...Monday was the biggest drop so far," said a distressed debt trader. On Monday the bonds dropped 5 points from Friday's price of 24 bid/26.5 offered.

The company's bank debt was quoted "close to 80" at Tuesday's close. It had been bid at 81 and offered at 83 on Friday.

And the bankruptcy sent Fleming's convertibles still lower, closing Tuesday at 2 bid with no offers, which would be about 3 points lower than the closing bid on Monday. The stock was halted at 50c on the news.

"Those [Fleming converts] are going to zero. I mean 2 bid - I call that zero," said a distressed trader.

Analysts and traders had varying opinions on when the company would emerge from bankruptcy. One said the debtor-in-possession financing does not seem large enough to cover the company's funding.

"The DIP just seems small," said the trader.

But an analyst said there were too many factors to consider within the bankruptcy.

"I would assume, because it's a parent facility, that it would take a little longer. But it all depends. There are a lot of things they can use to their advantage, like rejecting or canceling leases on stores," said the analyst.

"If they get in and out quickly, of course you won't see as much damage," said the analyst. "But if they get stuck, like a lot of retailers do - think of Grand Union and Pathmark - it'll take quite a while."

In any case, the analyst said, most people expect the company will emerge "significantly smaller."

Mildly surprising on Tuesday was the announcement that Air Canada had filed for bankruptcy. Weighed down by a heavy debt load and a deep slump in air travel, the Toronto-based airline filed a request for protection under Canada's Companies' Creditors Arrangement Act.

The company said it had arranged C$1.05 billion ($700 million) of debtor-in-possession financing from GE Capital Canada, allowing it to keep flying.

The bankruptcy protection, Canada's equivalent to a U.S. Chapter 11 filing, will last until May 1. Air Canada said bankruptcy protection would allow it to push ahead with changes that will transform it to a low-cost operator from a full service carrier.

A distressed trader quoted the company's 10.25% notes at 21 bid/23 offered and trading flat. On Monday, the notes had been about two points higher at 23 bid/25 offered - but with accrued interest.

"The filing was expected but there were people who thought they'd come through. They fell to the mid-20s after being in the low 30s last week," said a distressed debt trader.

"I'm just flabbergasted that US Air got out (of bankruptcy). Who knew?" he said.

US Airways Group Inc. on Monday emerged from bankruptcy as a leaner, more efficient, but still money-losing carrier with a greater focus on regional jets.

Based in Arlington, Va., US Airways said it expects to post a loss this year and next as the Iraq war and terrorism fears cut travel. It now has 36% fewer employees, 30% fewer available seats and 25% fewer flights than it did before the Sept. 11, 2001 attacks.

American Airlines, having avoided bankruptcy for now, slipped in Tuesday's trade after the company announced it would delay payments on some debt and aircraft leases. The company's 9% notes due 2012 dipped a point and a half to 10.5 bid/13.5 offered after rising to 12 bid/15 offered Monday.

American, a unit of Fort Worth, Texas-based AMR Corp. said it will invoke "grace periods" in an unspecified number of financing agreements while it continues talks to negotiate restructuring agreements. Failure to make a payment within a grace period ordinarily results in default.

On Monday, American Airlines said it reached a wage concession deal with its mechanics' union, as it remained in 11th-hour talks with two other unions to reach a deal for $1.8 billion in total cost cuts, averting a bankruptcy filing later in the day.

On the firmer side Tuesday were energy companies. CMS Energy Corp.'s 7 5/8% notes due 2004 ended Tuesday up a point at 88 bid. The 7½% notes due 2009 were also a point higher 60 bid/62 offered.

"Calpine has been a little bit better," commented another trader. "[Monday] the 81/2s of 2011 were 483/4-493/4, [Tuesday] 491/2-501/2."

There was also some stability in Centennial Communications Corp. Both term loans B and C were quoted bid at 82 and offered at 83, while its term loan C was quoted at 85 bid/86 offered.

"There was a little strength in the telecom sector. Some companies have reported good numbers recently," said a market source.

And in other news, Reliant Resources Inc.'s bank debt may see a huge jump in the near future, according to one trader, now that the company has closed on a new $6.2 billion credit facility (see story elsewhere in this issue for further details).

Prior to the announcement of the new financing, the bank debt was quoted in the mid-70s, around 74/75, according to the trader. However, now "the expectation would be that pricing will jump up a good solid 10 to 20 points. The structure is like Allegheny's and that's what happened to that bank debt," the trader said.

Reliant Resources is a Houston provider of electricity and energy services.

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