Winn Dixie weakens again on rating cut; Pegasus tumble eyed

By Paul Deckelman and Sara Rosenberg

New York, Feb. 6 - Winn Dixie Stores Inc.'s bonds - which had been slowing improving over the previous two sessions from the sharp losses they had incurred earlier, were seen weaker again on Friday, after Moody's Investors Service cut its ratings on the Jacksonville, Fla.-based supermarket operator's debt.

Elsewhere, trading was generally quiet, with distressed-debt investors watching the latest blow-up to hit the overall junk bond market - Pegasus Communications Corp., whose bonds fell more than 10 points into the high 80s from levels at or above par previously, after DirecTV - whose service Pegasus resells in rural markets - announced that it was ending all efforts to resolve outstanding legal disputes between the two companies by mediation. That appeared to quash hopes held in some quarters that DirecTV might make an offer to buy out Pegasus in order to end the legal struggle.

Winn-Dixie's bonds had swooned from levels at or above par down into the 80s on Jan. 30, when the company reported an unexpected large loss for the latest fiscal quarter, and they had continued to fall over the next few sessions, with its 8 7/8% notes due 2007 dipping into the upper 70s before hitting bottom and starting to come back.

But after having gotten as good as 84 around mid-week, those bonds were once again weaker Friday, quoted falling to around 82 bid, after Moody's lowered the company's ratings two notches, to B1 from Ba2 previously. The outlook remains negative, meaning that another downgrade is a possibility.

Moody's said that the downgrade was prompted by the ratings agency's belief that the recent deterioration in revenue, margins, and debt protection measures will persist over at least the medium-term.

It also cited "the challenges in winning back customers and market share from efficient competitors such as Publix and the Wal-Mart supercenter format," as well as "the likelihood that the company needs to carry out a substantial asset rationalization program."

Elsewhere, the travails of Pegasus attracted some attention in distressed territory, as the Bala Cynwyd, Pa.-based satellite television programming distributor's 11¼% notes due 2010 were being quoted at 88.25 bid, down from 102.5, and its zero-coupon notes due 2013 dropped to 77 from 92 bid previously. There was also some talk that the latest developments put in danger the company's plans to sell $100 million of new bonds and use the proceeds to take out some existing bond debt. Pegasus stock was also down more than 30% in very busy trading.

Air Canada "much lower" on pension row

Among other distressed issues, a market source saw Air Canada's bonds "much lower" in the wake of the rejection by the troubled Canadian air carrier's unions of pension plan changes proposed by the investor seeking to take a large stake in the company and lead it out of bankruptcy.

The source saw the airline's 10¼% notes due 2011 nosediving to 30.5 bid from prior levels at 36.5.

That drop followed Thursday's news that the unions had angrily rejected the plan put forward by Trinity Time Investment, which won the right to take a controlling stake in Air Canada.

The Hong Kong-based investment company said that it wants to switch the pension plan to a "defined contribution plan", where employees bear investment risks, instead of the traditional "defined benefit plan" where the company is obligated to keep paying the same benefits regardless of regardless of market fluctuations and the company's financial health.

The unions call the proposed switch "an insult" that violated their collective bargaining agreements - but Trinity Time said its proposal is non-negotiable and warned that it could retract its investment offer in Air Canada if the pension issues were not resolved before April 30.

Calpine loans steady despite warning

On the bank loan front, Calpine Corp.'s debt was unchanged after the company put out fourth quarter financial expectations that included an anticipated core operating earnings net loss higher than analyst estimates. However, it still anticipates an overall profit for the quarter.

The company's second lien bank debt was quoted at 97.75 bid, 98.5 offered, according to one trader. And, the CCFC II revolver was still being quoted at 98 bid; the offer changed slightly since Thursday, coming down to 98.75 from 99.

The San Jose, Calif. power company is expecting a core operating earnings net loss of approximately 13 cents per share, or $54 million. Earnings per share of approximately 30 cents, or $125 million of net income, are currently anticipated, according to a company news release.

The results for the quarter will include a gain of some 38 cents per share due to a change in accounting principle and certain mark-to-market activity, a gain of about 10 cents per share on the sale of assets and a gain of around nine cents per share for the purchases of outstanding debt and preferred securities. Offsetting these gains, the company recorded a loss of approximately 14 cents per share for other charges related primarily to equipment cost and office space write-downs and costs associated with the termination of long-term service contracts.

Calpine this past week unveiled plans to float some $2.3 billion of bank loan and bond debt to refinance existing obligations.

Apart from Calpine, the distressed bank loan market was said to pretty quiet, according to a number of sources, with one trader actually saying that he "could hear crickets chirping".

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