Fleming firmer again, Lucent gains; Old Evangeline Downs prices upsized 7-year deal

By Paul Deckelman and Paul A. Harris

New York, Feb. 19 - Fleming Companies Inc. bonds were being quoted several points higher for a second consecutive session Wednesday, continuing to gain strength on announcements earlier in the week of the sale of some assets and a new supply contract. Lucent Technologies Inc.'s bonds were meanwhile also higher after the company reiterated its projection that it will return to profitability this year and handed the chairman's post to its CEO.

In the primary market, only one race was run during Wednesday's high-yield primary market session, with The Old Evangeline Downs, LLC crossing the finish line with an upsized $120.7 million offering of seven-year notes. Meanwhile investment bankers were heard to be leading one new contender, FairPoint Communications, Inc., past investors and up to the starting gate with another seven-year deal, this one for $225 million.

Fleming's bonds continued to strengthen in the aftermath of the announcement earlier this week that the Dallas-based wholesale grocery distributor - Number-1 in the industry - had sold some 17 more of its underperforming retail stores for about $82 million, and had inked a $35 million contract to supply packaged goods to 114 additional branded convenience stores owned by gasoline retailer Conoco Phillips, on top of the more than 700 company owned and operated stores that it already supplies.

Fleming's bonds "were better today, on top of [Tuesday's] advance," a trader said, quoting its 10 5/8% senior notes due 2007 as having firmed to 38 bid from Tuesday's lows around 34, and its 10 1/8% senior notes due 2008 at 65 bid, up a point-and-a-half.

At another desk, a trader quoted the 10 1/8s even higher, pegging them up two points at 69 bid from the 67 that he had seen late Tuesday, while the 10 5/8s had risen to 38.

He saw "nonexistent" trading in the company's 9 7/8% and 9 ¾% notes.

Fleming shares were up 20 cents (6.35%) to $3.35 on New York Stock Exchange volume of 1.36 million, only slightly above the norm.

Meantime, Moody's Investors Service late Wednesday cut the debt ratings of a Fleming competitor, Nash Finch Co., lowering the rating on its $165 million of 8½% senior notes due 2008 to Caa1 from B2 previously.

The ratings agency said that the reasons for the downgrade "include Moody's understanding that the company still has not retained outside auditors or made measurable progress at resolving the SEC's accounting concerns. In our opinion, the company likely will not file Third Quarter 2002 results before the March 15th deadline given by the senior subordinated note trustee."

The Moody's downgrade completes a triumvirate of such actions by the major rating bodies following its announcement Friday that it had been notified by the trustee for the notes that it is in default on the bonds because it did not file financial reports on time.

The Minneapolis-based grocery products distributor - already under Securities and Exchange Commission scrutiny and its own internal investigation over how it accounts for certain vendor charges - additionally said that unless it files the financial reports with the Commission within 30 days, it will also be in default under its bank credit facility.

Following that announcement, Standard & Poor's cut Nash Finch's corporate credit to CCC- from B+ and revised its outlook to negative from developing. On Tuesday, Fitch Ratings chimed in with a downgrade of the company's secured bank credit facility to B+ from BB and of its subordinated notes to B- from B+, citing "general weakness in the company's operating environment and B+in particular competitive pressures on its independent and company owned retail stores."

Despite the downgrades, however, a market source said he had seen no activity in the 8½% notes, which had fallen sharply earlier this month after Nash Finch disclosed that it was being probed by the SEC. He pegged the notes somewhere around the same low 60s area to which they had fallen after that disclosure.

Outside of the grocery supply sector, Lucent's bonds were better, with a trader quoting its 7¼% notes due 2006 as having firmed to 80.625 bid/81.75 offered from prior levels around 79.5 bid/80 offered, after the Murray Hill, N.J. based maker of telecommunications equipment, which reported a first-quarter net loss of $389 million (11 cents a share), said that it sticks by its earlier forecast that it expects to return to profitability this year.

Lucent also said that chief executive officer Patricia Russo will also assume the duties of retiring chairman Henry Schacht, who had pledged a year ago, when Russo was named CEO, that he would stay no more than an additional year in his chairman's post. He remains with Lucent as a board member and senior advisor to Russo.

The bonds of Lucent competitor Nortel Networks Corp., which usually move more or less in tandem with Lucent's, since they are affected by the sale industry dynamics, were also seen higher, although the trader opined that they had already "run up so much recently, how much more room do they have?" He saw Brampton, Ont.-based Nortel's 6 1/8% notes due 2006 as having pushed up to 87.625 bid/88.25 offered from prior levels at 86.5 bid/88 offered.

Nortel was basking in the afterglow of Friday's announcement that the Canadian government -owned Export Development Canada had agreed to give it up to $750 million in credit support to help provide liquidity and underpin operations, as well as the news that the company had been granted a $15 million contract by China Netcom to deploy a national multiservice backbone network.

However, this good news was tempered by news reports that Nortel executive had been quoted as warning that a price war in wireless equipment could cause the entire market to fall by 10% percent in 2003 from the 2002 sales level of $40 billion. That caution slightly revised upward an earlier forecast by the company that the percentage decline in the market would be in single digits.

But telecom seemed not to notice. The trader went on to say that "the tech and telecom sectors" were where the day's movement mostly took place, "firming before the war."

He quoted Level 3 Communications Inc.'s 9 1/8% notes due 2008 as "feeling a little better," advancing to 68.375 bid from 66.5 bid/67.5 offered earlier. Nextel Communications Inc.'s 9 3/8% notes due 2009 were a point better at 97 bid from 96 bid/97 offered earlier.

And Qwest Communications International's paper was seen a point better across the board after the Denver-based regional Bell operating company Wednesday posted a fourth-quarter profit - its first black ink in 11 quarters - due to one-time gains.

Qwest's 7¼% notes due 2011 firmed to 69.5 bid/70 offered from 68 bid/69 offered Tuesday.

At another desk, a market-watcher pegged the company's 5 7/8% notes due 2004 up a couple of points, in the high 80s, while its 7¾% notes due 2006 were up about three points to around 77 bid.

Qwest posted fourth-quarter net income of $2.7 billion ($1.61 a share), aided by gains from the first part of the sale of its QwestDex telephone directory publishing unit, and a debt-exchange offer in December. That contrasts with the year-earlier loss of $645 million (39 cents a share). Even excluding the one-time items, Qwest's loss had substantially narrowed to $35 million (2 cents a share) versus $377 million (23 cents a share) a year ago. Analysts had been expecting an 11-cent loss in the latest quarter.

And Qwest - which lost nearly $36 billion for the full 2002 year - also said it expects its losses to moderate this year.

In the primary, Old Evangeline Downs, LLC, issuing jointly with The Old Evangeline Downs Capital Corp., priced $120.7 million proceeds, increased from $110 million, of 13% seven-year senior secured notes (Caa1/B-) at 98.0 to yield 13.448%. Jefferies & Co. ran the La.-based racetrack and gaming enterprise's deal in which Old Evangeline also agreed to pay contingent interest on the notes after its casino opens in an amount equal to 5.0% of cash flow up to $2.5 million per annum.

Stepping up to fill the vacancy left in the wake of the Old Evangeline transaction was Charlotte, N.C.-based rural telecommunications services provider FairPoint Communications which began its roadshow Wednesday for $225 million of seven-year non-call-four senior notes. The refinancing deal, via Credit Suisse First Boston and Salomon Smith Barney, is expected to price by month's end.

Also during Wednesday's session price talk of 11% area emerged on Doane Pet Care's $200 million of seven-year senior notes (B2/B-), which are expected to price Friday morning via Credit Suisse First Boston and JP Morgan.

And market sources told Prospect News that Citgo Petroleum Corp.'s offering of $550 million of eight-year senior notes (B+) via Credit Suisse First Boston is now expected to price on Thursday.

The deal, with proceeds slated to fund a dividend to parent PDV America, unit of Petroleos de Venezuela, SA, the national oil company of Venezuela, had originally been expected to price late in the week of Feb. 10. Last Friday a source close to the transaction advised Prospect News that Citgo would spend some extra time on the road and likely price during Wednesday's session.

On Feb. 13 price talk of 11% area was heard on the Tulsa crude oil refiner's new notes. Late in Wednesday's session syndicate officials from Credit Suisse First Boston could not be reached to comment on the offering.

In the wake of Wednesday's session one sell-side source told Prospect News that the high-yield market might not be as hot as it had been 10 days ago.

"I think people are wondering where the good times went," said this official. "We were having such a good time and we finally woke up and read the paper. People are crawling back into the foxhole."

However this source attributed the softness to investor jitters driven by droning of war drums and the specter of terrorist alerts.

When asked if Tuesday's failed FastenTech Inc. transaction - the Minneapolis fastener company postponed its $175 million of eight-year senior subordinated notes (B3/B-) - could be taken as a sign that the market is soft, this source emphatically replied: "No."

"One deal that flopped doesn't really say a lot for the market," the source said, and theorized that investors might not feel as compelled to buy deals that involve dividend payments as they might have been in the not-too-distant past.

Also this source allowed that the buy-side, in the wake of the recent spate of mega-deals crowned by the $2.4 billion three-piece Crown Cork & Seal Co. deal that was done on Feb. 11, might not feel quite as compelled to unload cash as it has been reported to be in the recent past.

"Those deals have taken a lot of the spare cash that people had sitting around," the official said. "It's taken a lot of the need to invest out of the market."

However this sell-side source maintained that whatever softness is present in high yield can be attributed primarily to news headlines.

"I think people are still optimistic that if we can get through all of these geopolitical issues that are hanging like a cloud over everyone that the fundamentals have got to improve, given that the economy is starting to show some life," the source said.

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