Allied Waste pulls deal, FMC announces; Fleming continues slide

By Paul A. Harris

St. Louis, Mo., Sept. 20 - Allied Waste, Inc. trashed its proposed junk bond deal Friday, citing markets conditions, while FMC Corp. brewed up a new deal. And high-yield mutual funds took in cash for the fourth straight week.

In secondary trading, sources reported that Fleming Cos., Inc.'s paper was decisively weaker. They pointed to various items of bad news but advised that if you want to know what's ailing Fleming you could do worse than look in the direction of the flickering Blue Light.

Allied Waste withdrew its Rule 144A offering of $250 million of 10-year senior notes (Ba3/BB-/BB-), according to a statement released Friday by the company. Official price talk was announced Thursday as 9%-9¼%. Deutsche Bank Securities Inc. and Credit Suisse First Boston were joint bookrunners.

The company cited "volatility in the market" since it announced the transaction on Sept. 17 and stated that it could bring in a better coupon "in a more stable market environment."

One sell-side source told Prospect News early Friday that the market was hearing that talk on the Allied Waste deal had widened out to 9½%.

Another sell-sider said: "We heard that people wanted 9½% and they didn't want to pay that."

This source added that Allied Waste intended to use the proceeds to term out a credit facility maturing in 2004, for which the company was paying approximately 5%, with notes that would have carried a fixed rate that figured to come well over 9%.

"When you retire a bank facility, nine times out of 10 - especially a credit like this - you'll come back," the source added. "And the high-yield debt will still be out there. Somewhere down the road you have to make up for that and change the leverage."

Meanwhile in the primary market syndicate sources told Prospect News that the roadshow starts Sept. 30 for FMC's $300 million of senior secured notes due 2009 (existing ratings: Ba1/BBB-) via Salomon Smith Barney and Banc of America Securities. Although ostensibly the Philadelphia chemical company carries a split rating one source stated that FMC will be a high-yield deal.

Also on Friday, sources said that AMG Data Services had reported inflows of $153 million to high-yield mutual funds for the week ending Sept. 18.

According to Bear Stearns & Co. analyst Mike Taylor, four straight weeks of inflows now come to a total of $2.3 billion, "about three-fourths of the flows that left mutual funds for the preceding 11 weeks."

Starting before the Labor Day break, sources began telling Prospect News that the inflows represent "timer money," which will flow out again sooner than later.

Initially that may have been true, Bear Stearns' Taylor conceded, but things may be different at present.

"I think people did take advantage of a rally in high yield," he said. "Whether that money flows out again I think depends on the state of the economic data.

"Right now there is really no threat that the Fed is going to do any policy change next week. GDP might be revised higher for the third quarter than the consensus is currently.

"So I'm not sure that there is an imminent threat that money is going to be flowing out."

Another sell-side source put it in a slightly different way when asked if the inflows represent timer money.

"Where else are you going to put your money?" this source asked rhetorically. "Are you going to put it in the 10-year [Treasury note] at 3.78%? I don't think so. Are you going to put it in the equity markets that are falling one week and up the next?

"I think a lot of it is still timer money. I don't think we're done yet. I think investors have decent cash positions from both the new round of inflows over the last four weeks and also from some coupon clipping over June and July - without really having much supply in July and August; for all practical purposes you didn't have any supply.

"The jury is still out as to whether or not the market is going to open up here. But I think if it does you're going to have some decent deals get done."

In secondary activity, sources told Prospect News Friday that considerable weakening was seen in Fleming's paper.

"I did see evidence that Fleming was weaker yet again," one source said. "The 10 1/8% senior notes were offered at 75 this morning. Later in the day they were offered at 68.5. Yesterday I saw 73.5.

"I'm not sure anybody has a handle on what the bad news is with Fleming," this source added. "You had the article in the Journal a couple of weeks ago. And a couple of key executives left unexpectedly. Plus Kmart is a sizable customer of theirs."

Fleming has been sliding for the past week on a series of concerns, with the 10 1/8% notes, for example, down from 85 bid, 87 offered late on Thursday Sept. 12.

Talk on high-yield desks has mentioned a major seller.

In addition, the Dallas-based grocery wholesale distributor and retail supermarket operator has been hit by a recent Wall Street Journal article which claimed that its relations with many of its over 2,000 vendors were strained over discounts for supposedly broken or missing merchandise which the company unilaterally claimed, allegedly refusing to pay the full amount it owed the vendors, who supply Fleming stores and its wholesale operation with a wide variety of goods. Fleming disputed the Journal's contention that the problem was widespread or serious, saying it affected at the most a mere handful of vendor accounts.

The company has also been slapped with lawsuits from disgruntled investors that the company misled them for much of the year by giving overly optimistic assessments of the performance of its retail supermarket division while knowing that the unit was struggling. Fleming has said it intends to "vigorously" defend against the actions.

And adding to investor disquiet just over a week ago Fleming said that William Marquard, its executive vice-president for business development and chief knowledge officer, would leave the company in about three months, citing "personal" reason for his impending departure. Fleming also said that another senior executive, Thomas Zatina, its senior vice president of Northern operations, had already left although it declined to elaborate on the reasons for the latter executive's departure.

On top of these recent developments is its relationship with Kmart Corp., the discount retailing giant currently in Chapter 11 and Fleming's largest individual customer.

Another junk-rated company, WestPoint Stevens Inc. lowered its sales forecast for the fourth quarter Friday, specifically citing declines in sales to Kmart as having deteriorated further from its previous estimates.

Another secondary market source said that there was softness among several of the food names that compete with Wal-Mart Inc. and Costco (he mentioned that Pathmark and A&P have lately been softer), and said that these companies are operating on "razor thin margins."

"The Fleming 10 1/8s, which is the most liquid senior issue, traded down to the mid-60s," the source said. "65 was the last trade I was posted on. I think they went out around the 70-level (Thursday) night."

This source added that the Fleming 9 7/8s and 10 5/8s were seen at the mid-to-high 40s last night. "Those are just offered," the source said. "There's no bid."

Finally the 9 7/8s went out Thursday at 46 bid, 49 offered. The source saw them at 40 late Friday.

Another source said the Fleming 10 5/8s closed at 46, off from 53 a day earlier, and the 10 1/8s dropped to 66 from 73.

This source said that Pathmark was unchanged, with the 8¾% notes at 96.5.

WestPoint Stevens' bonds also suffered during the session.

Citing the company's lowered estimates, one source saw WestPoint Stevens' 7 7/8% notes due 2008 closing at 30 bid, 32.5 offered, down from the high 30s.

"So that was pretty ugly. And the stock got killed too. I think people are just concerned about sales continuing to decline at Kmart," the source said.

In its announcement Friday, WestPoint Stevens said it still expects third quarter sales to be in line with its previous guidance of $475 million but it cut its fourth quarter forecast and said full-year 2002 sales are now likely to be flat to up 2% compared to the previously expected 2% to 4% growth.

WestPoint also withdrew its previous earnings guidance which had put 2002 earnings per share at 35 cents to 40 cents before restructuring costs. The West Point, Ga. consumer products company said it would announce new 2002 guidance at its third quarter conference call on Nov. 1,

As part of its announcement, WestPoint Stevens also said it would be taking further restructuring action which would lead to an expected $36.5 million charge.

As well as the decline in the bonds, WestPoint Stevens' stock took a hammering in the session, losing 42 cents or 38% of its value to close at 68 cents.

Activity was also seen in telecom names Friday, sources said.

One secondary market source said that there was further deterioration of the Sprint affiliates, AirgatePCS, US Unwired and Alamosa Holdings.

"All the zeros are now in single digits," the source said. "Not too long ago these things were 25" or 20. Now, he added, they are at levels like 8 bid, 12 offer. "They're just getting blasted.

"They've had horrible growth of subscriber numbers which they need to grow into their balance sheet," the source continued.

"I don't think Sprint is going to step up to the plate. I think there are restrictions on how much of this stuff they can own anyway."

Meanwhile Lucent Technologies, Inc.'s paper was seen trading up. Its 61/2s were reported as rising nearly three points to 37 5/8 from 35 and its 51/2s up 2 to 42 from 40.

Finally on Friday United Rental, Inc.'s paper was seen down: the 91/2s at 90½ from 94½ and the 103/4s at par from 104.

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