Fleming, Ahold keep falling; Calpine up; ON Semiconductor prices $200 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 26 - Grocery distributor Fleming Companies Inc.'s bonds, and those of international supermarket operator Royal Ahold NV continued to retreat for a third consecutive session Wednesday. On the upside, Calpine Corp.'s bonds firmed on talk of further asset sales.

In the primary market, ON Semiconductor Corp. was heard by syndicate sources to have priced its $200 million offering of seven-year notes at a discount to par to yield 13%.

And two issuers muscled onto the forward calendar, Wednesday. Stamford, Conn. information services firm Moore Corp. Ltd. issuing through Moore Corp. of North America will bringing $400 million of 10-year notes. And MTR Gaming Group, of Chester, W.Va. announced an offering $130 million of seven-year senior notes.

Semiconductor Components Industries LLC, a subsidiary of Phoenix, Arizona-based ON Semiconductor Corp., priced $200 million of 12% seven-year senior secured first priority notes (B3/B) at 95.467 to yield 13%, on Wednesday.

The offering, which came via joint bookrunners Salomon Smith Barney and Credit Suisse First Boston, priced at the wide end of the 12¾%-13% price talk.

Market observers advised Prospect News in the run up to the ON Semiconductor transaction that with the technology sector still making its way through the horse latitudes the company's new bond figured to be "an expensive piece of paper,"

As the ink was drying on the ON Semiconductor notes Moore announced it will come to the high-yield market with an offering of $400 million Rule 144A senior notes due 2013. A syndicate source told Prospect News that the roadshow is expected to get underway Tuesday or Wednesday for Moore's deal that is being run by Salomon Smith Barney, Deutsche Bank Securities and Morgan Stanley.

Also on Wednesday MTR Gaming announced it will bring $130 million of senior notes due 2010. Market and company sources identified Jefferies & Co. as the bookrunner on the deal. Proceeds will be used to repay the credit facility and to fund the repurchase of up to $30 million of common stock. The offering is also intended to provide the company the flexibility to pursue its plans to develop Presque Isle Downs in Erie, Penn., and to acquire Scioto Downs in Columbus, Ohio, according to the Wednesday press release.

Finally on Wednesday price talk emerged on an upsized notes offering from Northwest Pipeline Corp. Talk is 8 1/8%-8 3/8% on the seven-year senior notes (B+/Fitch BB-), now sized at $175 million instead of $150 million. Pricing is expected to take place Thursday afternoon.

The Northwest Pipeline deal, via Lehman Brothers, is one of four energy deals expected to be completed by the end of the February 24 week.

Also in the market are offerings from two El Paso Corp. subsidiaries that are bringing a combined $700 million of new issuance: Southern Natural Gas Co.'s $400 million of seven-year senior notes (B1/B+) and ANR Pipeline Co.'s $300 million of seven-year senior notes (B1/B+).

Salomon Smith Barney and Credit Suisse First Boston are joint books on both of the El Paso Corp. subsidiaries' deals. No price talk has been heard, however a market source told Prospect News on Wednesday that pro forma on the two deals is 10%.

In addition Chesapeake Energy Corp. is doing $300 million of 10-year senior notes, via Salomon Smith Barney, Credit Suisse First Boston and Bear Stearns, to help finance the acquisition of natural gas properties from El Paso Corp. Unofficial talk on the Oklahoma City independent natural gas producer's new notes is in the 7%-7½% range according to a sell-side source.

One syndicate source advised Prospect News late in Wednesday's session that official price talk on all three deals, Southern, ANR and Chesapeake, is expected to circulate the market on Thursday.

One buy-side source, speaking on background, indicated that the timing of the energy credits now in the new issuance market could hardly be better.

"There is a lot of uncertainty so energy prices are high," the investor said. "Results have been good for energy companies and it's a great time for them to raise money because their stock prices are up, the sentiment is positive and it looks like energy prices are going to stay high for a while.

"I think that's temporary, though, and energy prices are going to decline after we do whatever we're going to do in Iraq," the source added.

This same source from the buy-side invoked classical physics to describe the present situation in which high yield is seeing positive returns in the face of falling stock prices.

"To me the market is defying gravity," the investor commented. "We're seeing the typical spring phenomenon of yield spreads narrowing. High yield has been quite robust the last few days and so far this year it has been very good.

"However the equity market is telegraphing a weak economy. And you can't have high yield spreads narrowing in the face of a weak economy.

"I think we may be in for a seasonal richening-up of high yield only to have a correction when the realization comes through that the economy is on the weak side."

DirecTV's new 8 3/8% senior subordinated notes due 2013, which had priced at par on Tuesday and which then firmed smartly, closing around 101.75 bid/102 offered, were quoted Wednesday as having moved up to 102.5 bid/102.75 offered, "pretty good for a big deal," a trader said - especially considering that it was the second day of trading for the issue, and that the bonds had traded so strongly on the break Tuesday.

Also among recently priced bonds, J.C. Penney Corp.'s new 8% senior notes due 2010 were seen by one desk to have possibly traded as high as around 101 - well above Tuesday's 99.342 issue price - but at another shop were quoted late in the day as having actually eased slightly from issue, to 99.25 bid/99.75 offered.

But the big story in the secondary market Wednesday was the continued shellacking suffered by the securities of Fleming, which distributes grocery items to supermarkets and other retailers, and Ahold, which owns two large U.S. supermarket chains (Giant and Stop N Shop) in addition to its international holdings.

Fleming's 10 1/8% senior notes due 2008 - down eight points on Tuesday to around the 60 bid level - were trading around 58-59 on Wednesday, while its 10 5/8% subordinated notes due 2007, which had fallen about seven points Tuesday to the 33 bid area, traded down to around 30-31 on Wednesday.

Fleming's bonds - which had gotten pounded earlier in the month after the Dallas-based Number-one wholesale grocery supplier announced the end of its big supply deal with the bankrupt Kmart Corp. - began sliding again this week after the company announced further operations cuts and an associated $290 million earnings charge, and said that the Securities and Exchange Commission had upgraded its heretofore informal inquiry into the company's accounting practices to a formal investigation.

Fleming on Wednesday announced the retirement of executive vice president Stephen Davis, a 43-year veteran of the company; it was not immediately known whether his impending departure is connected with the operations cuts, which mostly involve areas of the company that dealt with Kmart, which at one time accounted for fully 20% of Fleming's sales.

While Fleming's bonds continued to track lower, although not in as dramatic a fashion as they had on Tuesday, its shares - which on Tuesday had tumbled 37% in New York Stock Exchange dealings - were on the rebound, jumping 36 cents (19.46%) to close at $2.21, on volume of 2.6 million, more than double the norm.

Elsewhere in the supermarket sector, Royal Ahold - whose bonds and shares have been sliding badly since it revealed on Monday that there were accounting irregularities at its U.S. Foodservice unit, which in turn led to the resignations of its chief executive officer and chief financial officer - were getting pushed around for a third straight session.

"It was a real pig," said one market observer, who quoted the company's 6 7/8% notes due 2029 as having fallen to about 61 bid, well down from the near-par levels at which they had begun the week.

A trader said that Ahold's 9¼% notes due 2009 were trading around 64.5 bid/66.5 offered, and its 8¼% notes due 2010 at around 68 bid/70 offered. "They were weaker in the morning, and finished pretty much unchanged. They certainly weren't better."

A distressed debt trader said that his desk had just begun tracking the issue, which before this week had been traded off the high-grade desks at most places. He pegged the '29s at 60bid/61 offered, while the 8¼% notes were at 68.5 bid/70.5 offered.

On the equity side, Ahold shares, which lost 61% of their value on Monday and an additional 17% Tuesday, declined a further 33 cents (9.59%) to $3.11 on Wednesday. Volume was nearly 11.4 million shares - many times the usual turnover of about 740,000.

Another sector on the downside Wednesday was the airlines, with American Airlines parent AMR Corp.'s 9% notes due 2012 dropping from Tuesday's close at 23 bid to offered levels around that same area, with no fresh bids seen.

A trader said there were "a lot of rumors about there" about the Dallas-based Number-1 U.S. air carrier, citing a newspaper report which said that the pilot's union was anticipating a bankruptcy filing somewhere down the line. Although the union sought to clarify that this was not the case, "those bankruptcy rumors are out there."

Equity investors were hearing those rumors as well - AMR shares lost 26 cents (9.15%) to end at $2.58. NYSE volume was 5.5 million shares, about double the norm.

Other airline bonds falling in sympathy included Delta's 7.70% notes due 2005, which were two points lower, at 60 bid/64 offered, and Continental's 8% notes due 2005, quoted four points lower, at 44.5

"The airlines have been pretty [crummy] the last few days," the trader said - then corrected himself. "Days? What am I saying? Try weeks - or months."

Besides the AMR bankruptcy talk - unsettling enough in the wake of the recent crash landings in Chapter 11 of US Air and United Airlines - the shares and bonds of the carriers were also spooked by the continued war speculation and the very real spike in fuel prices, with supplies of all distillates recently drawn down to extremely low levels.

But proving that one man's disaster is another's opportunity, the shortage of airline fuel, heating oil and gasoline that has helped send prices for those commodities soaring, continued to boost the bonds of refiners such as Giant Industries, whose 9% notes due 2007 were two points better at 82 bid, and Tesoro Petroleum, whose 9 5/8% notes due 2012were nearly two points better, at 77.

A trader said Chesapeake Energy's bonds were firmer, its 8 1/8% notes rising to 104.25 bid/104.75 offered from prior bid levels around 103, aided buy the surge in world crude prices to 12-year highs. "There are a lot of buyers in energy." he said."

Elsewhere on the energy scene, Calpine was "up a bit," a trader said, citing talk of possible further asset sales by the San Jose, Calif. Based power plant company. Its 8½% notes due 2011 were quoted two points better at 47 bid/48 offered.

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