Winn-Dixie notes firm off lows; McLeodUSA, Atkins bank debt off after lender calls

By Paul Deckelman and Sara Rosenberg

New York, Feb. 17 - Maybe it's because the bonds were oversold - or maybe it's because a new movie scheduled to open at theaters all over the country Friday has its name right up there in the title - but Winn-Dixie Stores Inc.'s 8 7/8% notes, which got beaten up last week and which were pounded anew on Wednesday, were seen up several points from their lows Thursday.

In bank debt dealings, both McLeodUSA Inc. and Atkins Nutritionals Inc. saw adverse affects on their bank debt Thursday as the market reacted to what must have been unfavorable news dished out during private lender calls that each company held separately on Wednesday, according to sources.

A trader quoted Winn-Dixie's 8 7/8% notes due 2008 as having firmed to 58 bid, 59 offered Thursday - up from their close Wednesday at 55 bid, 56 offered, and well up from their intraday lows Wednesday at 51 bid, 52.

The movie, "Because of Winn-Dixie," has only a peripheral relationship with the troubled Jacksonville, Fla.-based supermarket operator - it's really a heart-warming family flick about a lonely little girl who adopts a lovable mutt of a dog, whom she names "Winn-Dixie" because she found him when she went to the store to buy some groceries.

Not too many other people have been doing that these days, instead deserting the venerable store chain for such rivals as Publix, Food Lion or the ubiquitous Wal-Mart. Bond traders think it's wholly appropriate that the company's name shows up in a film about a pooch - because the bonds have turned into a real dog lately.

Those bonds had been trading in the high 80s only about two weeks ago but then collapsed down to the low-to-mid 60s after the company's release of its latest quarterly numbers last week - numbers which show that sales are still running well below what the company needs, red ink is continuing to flow, and at least some vendors are starting to get antsy and have toughened their payment terms, although nobody is demanding cash on delivery for their merchandise - yet.

After a couple of sessions of seeming stability, the bonds were again in free-fall Wednesday after the company filed an amended 10-K report with the Securities and Exchange Commission, in which it said that it had miscalculated EBITDA for the 2005 fiscal first quarter ended Sept. 22, and that the real EBITDA number - considerably lower - triggered a $100 million reduction in both the company's revolving credit facility borrowing capability and, accordingly, in its overall liquidity picture.

Not only did the company have less credit available but the mistake raises questions about its accounting and the competency of management to give them accurate information, leaving some investors wondering when the next shoe will drop.

"You never know with that one," a trader said. "I traded Winn-Dixie when they were 103-104, then they traded down to about 85, but they hung in there and they came back [up to around par level] about a year, a year-and-a-half ago - but this time, it looks a little bit more ominous. They definitely have some problems."

McLeodUSA, Atkins loans down

In the bank debt market, McLeodUSA's paper dropped to 38 bid, 42 offered from previously wide levels of 40 bid, 47 offered on Wednesday for the Cedar Rapids, Iowa-based telecommunications services provider's debt, according to traders.

And the first-lien bank debt of Ronkonkoma, N.Y.-based diet nutrition products provider Atkins quickly slimmed all the way down to around 77 bid, 80 offered by the end of the day from 87 bid, 90 offered on Wednesday, according to one trader.

A second trader said that he saw the Atkins paper quoted around 81 bid, 83 offered a bit earlier in the day.

Mirant loans edge down

Meanwhile, activity in Mirant Corp.'s 2003 bank debt quieted down a bit on Thursday, after two very active days of trading, with levels coming in slightly to 73.5 bid, 74 offered from 73.875 bid, 74.375 offered, according to a trader.

On Tuesday levels had jumped up by about a point and a half to the 73 bid, 74 offered context, and then continued to climb on Wednesday.

Bank loan traders said they saw no fresh news out on the bankrupt Atlanta-based energy company that would explain the rise, and they attributed it to strong bond performance. Bond traders were equally at a loss to explain the sudden strength.

Little or no movement was seen in the bonds Thursday, and what little there was seemed to be an easing.

ATA, Salton notes higher

A trader saw ATA Airlines 12 1/8% notes due 2010 and 13% notes due 2009 up about three or four points on the session at 43 bid, 45 offered, but saw no news out on the bankrupt Indianapolis-based low-fare airline.

Elsewhere, Salton Inc.'s bonds were seen higher, with the Lake Forest Ill.-based small appliance maker's 10¾% notes due 2005 quoted up five points at 88 bid and its 12¼% notes due 2008 three points better at 71 bid.

There was no immediate positive news out that would explain the hike, other than perhaps a perception that the bonds got oversold when they fell last week after the company released its latest quarterly results - in the fiscal second quarter ended Jan. 1, Salton reported net earnings of $2.75 million (18 cents per diluted share), well down from $12.34 million (81 cents per share) a year earlier. In the six-month period ended Jan. 1, the company lost $430,000 (four cents per share) versus year-earlier earnings of $13 million (86 cents per share).

The company also indicated on its conference call that it was continuing to look at ways to refinance the $125 million of 10¾% notes coming due in December, but has no firm strategy on hand for that yet - which annoyed some of the analysts on the conference call, who said the company's hopeful talk about being able to refinance just doesn't jibe with the numbers.

Meantime, one of the company's two largest shareholders, Third Point LLC, has gone on record seeking the ouster of CEO Leonhard Dreimann. In a bitter missive sent to the CEO, the New York-based hedge fund's boss, Daniel Loeb, not only accused Dreimann of gross mismanagement and an "inexplicably insouciant attitude," but implied that like Nero fiddling while Rome burned, the Salton chief was partying while the company was in "a death spiral."

"The conference call debacle," Loeb wrote, "pales in comparison to what I witnessed last summer when I attended the U.S. Open tennis final. You can only imagine my consternation when I looked around the stadium and saw the Salton name emblazoned all around the interior of the stadium walls next to such robust companies as IBM, JP Morgan and Mass Mutual. I had to wonder how much precious capital had been squandered in such a poorly conceived marketing scheme to promote the Salton name when the company was in such dire financial straits. My bewilderment quickly turned to anger when I saw the crowd seeking autographs from the Olsen twins just below the private box that seemed to be occupied by Mr. Dreimann and others who were enjoying the match and summer sun while hobnobbing, snacking on shrimp cocktails and sipping chilled Gewurztraminer."

"We were laughing on the desk as we read that one," a trader said. He saw the senior bonds up a point on the day to 86 bid, 88 offered, and the subs three points better at 71 bid, 72 offered.

Overall, traders said, activity was restrained on the last full trading day of the week, ahead of Friday's abbreviated session leading into Presidents' Day, which will shutter U.S. financial markets on Monday.

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