Fleming falls amid continued turmoil; Swift, Intrawest deals price

By Paul Deckelman and Paul A. Harris

New York, Sept. 13 - Flemings Cos.' recently hard-hit shares and bonds continued to erode on Friday amid news of the departure of two senior executives and rumors of a major seller of bonds. Other bonds seeing some secondary market activity included Lucent Technologies Inc., which further reduced guidance and announced new restructuring moves, and Rite Aid Corp.

In the primary sphere, the week of Sept. 9 came to a close in the high yield primary market with a further build-out in the forward calendar - much as sell-side sources advised it would in the run-up to Labor Day.

Roadshow starts were set for new junk bond deals from Resource America Inc. and TI Automotive Finance plc on Friday. And Global eXchange Services was heard to have a new deal in the pipeline.

And two transactions were done Friday as the long trail drive of Swift & Co. concluded with bonds that priced at a steep discount while Intrawest Corp. priced its add-on with a tighter yield than the original bonds.

Meanwhile on Friday primary market sources talked about the third successive weekly inflow into high-yield mutual funds: $186.6 million, which came in for the week ending Sept. 11, as reported by AMG Data Services.

"There is good liquidity in the market," one sell-side source told Prospect News Friday. "It's just that there has not been a big calendar for people to put the money to work."

However, this official said, the deals are coming back.

"Over the next couple of weeks we'll see more stuff come to the market," the official said, adding that the new supply could conceivably come at a volume sufficient to "test" the market.

However this official expressed the opinion that at present "there is enough liquidity to absorb it."

Investors, this source added, will continue to proceed with caution.

"I don't think we're going to see a roaring bull market, out of the box," the sell-side source said, adding that the present market will favor "repeat issuers where the PMs [portfolio managers] are comfortable with the management team and the story.

"I think you're still going to see relatively high yields," the official added. "You're not going to see that come down overnight."

The week of Sept. 9, which spanned the one-year commemoration of the events of Sept. 11, 2001, came to an end in the high-yield primary market with two deals pricing on Friday.

Swift & Co. priced $268 million - $250 million proceeds - of seven-year senior notes (B1/B+) at a steep discount Friday. The deal, to help fund acquisition of 54% of ConAgra's US and Australian beef, pork and lamb operations by Hicks, Muse, Tate & Furst and Booth Creek Management, priced with a coupon of 10 1/8% at 93.48 to yield 11½% via Salomon Smith Barney and JP Morgan.

Price talk was 11½%-11¾%.

Sources from around the fixed income markets seemed to form a loose consensus as the Swift deal came out of limbo, where it was consigned following the postponement of the roadshow in the wake of the massive Con Agra beef recall of mid-July. Swift, the sources said, was being unduly hauled over the coals, because of the recall which after all, they said, took place on ConAgra's watch. Last Thursday one source told Prospect News that the price talk on Swift seemed inordinately high.

A syndicate official who spoke Friday with Prospect News, after terms emerged, agreed that indeed Swift may have gotten somewhat beaten up over the recall. Nevertheless, the company is glad to have the deal done, this source said.

When the new Swift bonds were freed for secondary dealings, the bonds pushed up several points to around the 95-96 area.

Intrawest, on the other hand, priced its add-on with a yield to worst that was 50 basis points tighter than the coupon on the original bonds.

The Vancouver, B.C. resort developer and operator priced an upsized - $137 million or $140 million in proceeds from the originally announced $125 million - add-on to its 10½% senior notes due Feb. 1, 2010 (B1/B+) via bookrunner Deutsche Bank Securities Inc. The deal priced Friday at 102.014 to yield 10%. Price talk was 9 7/8%-10%.

"The bonds priced near where the existing issue was trading," one syndicate source informed Prospect News, adding that the deal got very good execution.

With the two deals that priced Friday, new issuance thus far in September comes to $1.36 billion in proceeds, more than the $1.18 billion in all of August or the $1.30 billion in all of July.

And the forward calendar continues to build, with two new roadshow announced on Friday.

The roadshow starts Tuesday on a Rule 144A deal from Resource America Inc. The company is selling $125 million of eight-year senior notes, which figure to price during the week of Sept. 23. Bear Stearns & Co. and Friedman Billings Ramsey & Co., Inc. are joint bookrunners on the deal from the Philadelphia-based asset management company.

The green flag also goes down Tuesday on a Rule 144A offering from TI Automotive Finance plc, which is selling $215 million of senior notes due 2012 via JP Morgan and Salomon Smith Barney. The global auto parts supplier's roadshow is set to wrap up on Sept. 26, according to a syndicate source.

Finally on Friday market sources told Prospect News that Credit Suisse First Boston will be the bookrunner on an acquisition financing deal from Global eXchange Services, which will bring $235 million of seven-year senior subordinated notes to fund the purchase of the company from General Electric Co. by Francisco Partners. The transaction is set to close by Oct. 31, 2002.

Back among the already established issues, a trader said "we surely did see Fleming," quoting its 10 1/8% notes as having fallen to 78 bid/82 offered from late Thursday levels around 85 bid/87 offered. He saw its 10 5/8% notes due 2007, which had finished at 68 bid/70 offered on Thursday, fall to offered levels Friday around 64, with no bids seen. The trader saw Fleming's 9 7/8% notes - an issue which he said was "not that active - we don't see it a heck of a lot" - as having eased to 52 bid/53 offered, well down from 59 bid/61 offered at the beginning of the week, while its 9¼% notes were in the mid 50s, also down from where they had started the week. "They're getting beaten up pretty good," he asserted.

Another trader pegged the 10 1/8% notes as being offered around 80, well below Thursday's close at 85 bid/87 offered. "We didn't see the bid [side] after a while, because things got quiet."

He said that Fleming was "definitely drifting down on rumor of a major seller in the Street," although he had no further information as to who the seller might be or what segment of the investor community.

At another shop, a trader - acknowledging that he really doesn't normally follow the credit that much, said he "saw the sellers, but we don't know what the left [bid] side was."

A market watcher at another desk located the Fleming bonds down at least three points or more on the session, with the 10 1/8s having dipped down to offered levels around 82 during the afternoon from 86, and expected them to perhaps head lower.

On the equities side, Fleming shares fell 92 cents (13.90%) in New York Stock Exchange dealings Friday to close at $5.70. Volume of three million shares was more than twice the usual turnover.

During the session, 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.

The troubled Dallas-based grocery wholesale distributor and retail supermarket operator also said that another senior exec, Thomas Zatina, its senior vice president of Northern operations, had already left the company, although the company declined to elaborate on the reasons for the latter executive's departure.

Fleming shares and bonds have recently been roiled by allegations by 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. Those investors have filed class-action lawsuits, which Fleming said it intends to "vigorously" defend.

Fleming has also been reeling from 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.

A company spokesman said the departure of the two men was not linked to the company's recent problems. It is worth noting, however that one of the departing Marquard's responsibilities has been maintaining Fleming's alliance with Kmart Corp., the discount retailing giant, currently in Chapter 11;

Kmart is Fleming's largest individual customer, and its bankruptcy and the closure of nearly 300 of its over 1,400 stores so far has caused concern among many Fleming investors.

Elsewhere, there was little activity Friday in Tyco International Ltd. bonds, which along with its shares had risen solidly Thursday as the problem-plagued Bermuda-based conglomerate's new senior management duo of CEO Edward Breen and CFO David FitzPatrick moved to distance the company from the fallen regime of ex-CEO L. Dennis Kozlowski, even as Kozlowski and two other former Tyco executives were dragged before a judge in handcuffs Thursday to face state and federal charges that they participated in looting hundreds of millions of dollars from the company, allegations which the three disgraced executives denied.

A trader saw Tyco "ultimately unchanged from [Thursday]; they were just quoted a little wider. Instead of everything being quoted in one-to-two point spreads, offerings were a little higher and bids were probably about a half-point lower. Ultimately, my guess is unchanged; if anything traded, it probably traded between those levels anyway."

Another trader pegged the Tyco bonds up about half a point across the board, with "not a tremendous amount of activity."

A trader said "I don't know what to tell you, except for Lucent. After the earnings and the stock, the bonds were down about five points, but then recovered, although they still closed a good three to four points down."

He quoted the company's 6.45% bonds due 2029 as offered at 48, down from about 51 on Thursday, and its 7¼% notes due 2006 at 62 bid/64 offered, down from about 67 on Thursday.

"The news du jour was Lucent," he said. The ailing Murray Hill, N.J.-based telecommunications equipment maker warned on Friday that its business was much worse than analysts had feared and more job cuts were likely. It said that it would post a 45 cent-per-share loss during its fiscal fourth quarter - nearly triple what Wall Street had been anticipating. The once high-flying Lucent has already posted nine straight quarterly losses as the bottom has fallen out of the formerly booming telecom industry. It said that the continued troubles of the industry could force it to make further cuts in its workforce - already shrunken to about half of the more than 100,000 employees it had in 2001. By year's end, analysts believe, it could be left with just about a third that many.

Lucent shares plunged 39 cents (23.64%) to $1.26 on the NYSE Friday on volume of 141 million shares, over triple the norm.

A trader said that even though its stock was lower Friday, B/E Aersospace - whose bonds had pushed down around seven points on the week, "much weaker" - bounced a bit on Friday, improving by about two points on the day.

"I don't know if it was on technicals or what, but there seemed to be big interest in B/E Aerospace paper," which he quoted as hovering around the lower 80s range, with its 9½% notes at 83 bid/85 offered and its 8% notes due 2008 at 78 bid/80 offered, both two points up on the day, but still "down significantly" from where they were a week earlier.

There was no news out on the Florida-based maker of airline cabin interior components, but he noted that of necessity its fortunes were tied to those of the volatile airline sector, the ultimate customers for the planes built with B/E's cabin components.

The trader saw Rite Aid paper "up on rumors - supposedly there was a foreign buyer [for the company] that was going to take them over," but he said that as of late afternoon, that scuttlebutt was "unfounded." He said that his analyst who tracks Rite Aid called the supposed would-be buyer, whom he did not name, and "said it was sort of unfounded."

He saw the Camp Hill, Pa.-based drugstore chain operator's paper up about two points on the session, with its 6 1/8% notes due 2008 having firmed to 61 bid/62 offered from prior levels around 59, and the 6 7/8% notes due 2013, which had ended at 56 bid/57 offered Thursday, were offered at 59 on Friday.

Another trader, however, said he had not seen Rite Aid "trade up at all" on Friday. "After the numbers which came out a couple of days ago, which seemed pretty decent, Rite Aid paper stayed the same, if not half a point lower."

He saw the company's 7 5/8% notes due 2005 hanging in around the 72 bid/74 offered area, while its 7 1/8% notes due 2007 were still at 66 bid/68 offered, or perhaps half a point higher on both sides, "with sellers and buyers out there," while the 6 7/8s "still seemed to be offered around the 60 price, with not a lot of action there. "

That trader said that the $186.6 million high yield mutual funds inflow reported by AMG Data Services for the week ended Wednesday was certainly "nice to see."

The inflow marked the third consecutive week in which more money came into the junk bond funds - considered by many to be a key barometer of overall high yield market liquidity trends - than left them, following the inflow of $283.909 million in the week ended Sept. 4 and the gargantuan $1.556 billion mega-inflow in the week ended Aug. 28.

The latest week's cash infusion into the funds raised the cumulative total for the year so far to $4.936 billion from $4.749 billion the week before, according to a Prospect News analysis of the AMG statistics. Inflows have been seen in 23 weeks out of the 37 weeks since the beginning of the year, although that total was badly skewed by the 11-week skein of outflows seen between early-June and late August, in which time more than $2.5 billion evaporated from the funds.

"I think you could see how the week started," the trader said, "with not a lot of activity, but there were a lot of buyers out there for particular items, and I think that 's what was driving the market again was [incoming] money, whether it was CBOs or hedge funds."

But he added that "retail [investment] is the heart, retail and the middle-market guys. You haven't seen them super-interested yet," although he said the three week inflow surge - in which the funds have gotten back slightly over $2 billion of what the funds had lost during the losing streak - was a hopeful sign that could encourage individual investors to return. "We shall see," he said. "So far, so good."

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