Fleming moves up ahead of amendment; Wyndham recoups some losses

By Sara Rosenberg

New York, Oct. 18 - Fleming Cos. Inc. bank debt has been strengthening as investors gain confidence in the company's ability to obtain an amendment to its credit facility that would allow for asset sales - and after the market closed Friday news emerged that the amendment did pass.

Also on the move is Wyndham International Inc., which has seen its bank debt rebound slightly from Thursday's devastating drop since investors have had a day to digest the lowered EBITDA forecasts and grow slightly more comfortable with the news.

"Fleming has been moving pretty nicely," a fund manager said. "I bought a small piece today at 981/4." The manager added that the company's bank debt has "kind of jumped around" over recent sessions. For example, when the proposed asset sales were first announced in late September, the loan traded at approximately 971/2. It then proceeded to dip to around 95/96 following a ratings downgrade by Moody's Investors Service on Oct. 7, he explained.

On Sept. 24, Fleming announced it will divest 110 existing price-impact stores, which operate under the Food 4 Less and Rainbow Foods banners. Consents from the lending group for the amendment of the company's credit agreement to allow for these asset sales were due on Friday, according to the fund manager. "We won't know for sure [Friday if the amendment was successful], but [as of this morning] I think they got 80% of the people in favor of the amendment. It looks like it will go through," he said. His prediction proved true, as news emerged late in the day that the amendment was indeed passed, according to a syndicate source.

Under the proposed amendment, Fleming has agreed to sell $150 million in assets by Dec. 31 and an additional $250 million by March 31, 2003, according to the fund manager. "It's to their benefit to get $150 million done by Dec. 31. If not they'll have to pay some fees," he added.

With the proceeds from the asset sales, Fleming plans on repaying its entire term loan, "which right now is just under $425 million," the fund manager continued. As the amendment started to gain momentum, the bank debt started to strengthen because people figured that they could make a quick profit by purchasing the paper now and getting paid down at par in the near future, he explained.

Other terms of the amendment include the increase of pricing on the term loan B to Libor plus 250 basis points from Libor plus 225 basis points and the payment of a 12.5 basis point amendment fee, the fund manager said.

On Oct. 7, Moody's Investors Service downgraded Fleming's ratings, including its $975 million secured credit facility to Ba3 from Ba2. Moody's said it cut Fleming because it believes the company's national distribution presence does not provide the exceptional competitive advantage previously incorporated in the ratings and that the company's capital strength may be reduced with divestiture of its retail operations.

Also influencing the ratings is the uncertainty related to resolution of Kmart's bankruptcy, intense competition within the fragmented distribution industry, the necessity of continually replacing clients lost in the consolidating supermarket industry, and the challenges in effectively integrating actual and anticipated distribution acquisitions, Moody's said.

The company benefits from stability as the only national grocery distributor, the potential leverage reduction resulting from divestiture of the retail segment, and the company's adequate liquidity, Moody's added.

Fleming is a Lewisville, Tex. distributor of consumable goods and operator of price impact supermarkets.

Wyndham's bank paper was quoted a "little stronger" on Friday with a bid of 75 and an offer of 77 on its term loan B, according to a second fund manager. This slight move north does not make up for the approximately seven-point drop that was seen on Thursday, however, it is seen as a step in the right direction.

"I think people are feeling a little better because they've spoken to the company and were reassured that they're working had on asset sales. It was a weak month in a weak quarter. The third quarter is seasonally the weakest for Wyndham and September is a weak month. People scratched the surface [and realized that] it's not like Wyndham has fallen off a cliff, it's just a bad month," the fund manager explained.

On Thursday, Wyndham's bank debt traded down to 73 after the company lowered third quarter EBITDA guidance to approximately $60 million from $82 million to $87 million. One trader said he had previously seen the loan at 80 while a second said the last trade he saw was at 83.

The Dallas hotel and resort company's reduced forecast is primarily "a result of the slow return of business travel due to the sluggish economy impacting the entire industry," a news release said.

Towards the end of September, Wyndham's bank paper bounced up by about two points to 83/85 on the IRL and 821/2/84½ on the B loan following news of a definitive agreement with Westbrook Hotel Partners IV, LLC to sell 13 hotel properties for approximately $447 million.

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