Fleming bank debt jumps around on news of informal SEC inquiry

By Sara Rosenberg

New York, Nov. 14 - Fleming Companies Inc.'s bank debt was down following news of an informal SEC inquiry.

One trader saw the loan recently quoted at a 91 bid and a 94 offer. Another trader assumed that the bank debt was "all over the place". However, exact quotes could not be obtained. Previously the loan was quoted in the high 90s region.

Late Wednesday night Fleming announced that the Fort Worth staff of the Securities and Exchange Commission has commenced an informal inquiry focusing on previous media speculation regarding vendor trade practices, the presentation of second quarter 2001 adjusted earnings per share data, accounting for drop-ship sales transactions with an unaffiliated vendor in Fleming's discontinued retail operations and the calculation of comparable store sales in its discontinued retail operations.

"We will, of course, cooperate fully with the informal inquiry and will provide the staff with all the information it needs in responding to its fact-finding," said Mark Hansen, chairman of the board and chief executive officer, in a news release.

Earlier on Wednesday, the company reported some positive news, announcing that it has entered into an agreement with Save Mart Supermarkets of Modesto, Calif. for the sale of 26 Fleming-owned Food4Less stores in California, plus two locations currently under construction. Net proceeds for the 28 locations are expected to be around $165 million. Cash proceeds from the sale will be used to reduce the company's senior secured term loan balance.

The company plans to sell its remaining 84 retail locations this quarter and in 2003, with proceeds going towards the reduction of debt.

"[The company] had previously announced that they were putting these assets up for sale so that was kind of factored in [already]," the fund manager concluded.

On Sept. 24, Fleming announced the decision to divest 110 existing price-impact stores, which operate under the Food4Less and Rainbow Foods banners. However, in order to proceed with the asset sales, Fleming needed consent from its lending group.

Last month the bank debt strengthened to around 98¼ as the company sought and successfully completed an amendment to its credit facility agreement that allowed for the sale of these retail assets. Under the amendment, Fleming agreed to sell $150 million in assets by Dec. 31 and an additional $250 million by March 31, 2003, a fund manager previously told Prospect News.

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 concluded.

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

In primary news, Raytheon Aerospace LLC held a bank meeting on Thursday regarding increasing the revolver and term B tranches of its credit facility, according to a fund manager. CIBC is the lead bank on the deal.

The loan consists of a $40 million revolver, including the new $15 million add-on, an existing $45 million term loan A and a $104.375 million term loan B, including the new $55 million add-on, the fund manager said. Interest rates on the pro rata tranches are Libor plus 350 basis points. Interest on the institutional tranche is Libor plus 400 basis points.

Proceeds will be used to help fund the acquisition of Maritime Flight Group.

Raytheon Aerospace is the company that tried to merge into a new company called Vertex Aerospace LLC through an initial public offering. However, the IPO never was completed since the market "stunk," the fund manager explained.

Raytheon Aerospace is a Madison, Miss. provider of aerospace and other technical services to U.S. Department of Defense and other government agencies.

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