WorldCom falls on report U.S. may end contracts; Fleming higher as signs of improvement surface

By Carlise Newman

Chicago, June 13 - WorldCom Inc. dominated trading at distressed debt desks Friday in a relatively busy pre-weekend session. The company's debt was weighed down by newspaper and wire reports that the U.S. government has been urged to think about ending contracts with the telephone and internet company.

WorldCom's 7½% notes due 2011 were down to levels of 28 bid after trading at 30.25 Thursday, a distressed debt trader said.

"WorldCom paper was moving yesterday, the day before, but today it really flopped," he said.

A memo made available on Friday said the U.S. government should consider suspending business with WorldCom because of its financial fraud case, the Wall Street Journal first reported Friday. The assistant inspector general at General Services Administration, which handles government procurement, based his recommendation on civil fraud charges against the company.

The June 2 recommendation to consider beginning suspension proceedings came after GSA General Counsel Raymond McKenna said the agency had no evidence that WorldCom could not provide services for the government.

Ashburn, Va.-based WorldCom plans to change its name to MCI when it emerges from bankruptcy protection this fall.

Global Crossing Ltd.'s bonds opened higher Friday after in response to XO Communications Inc.'s announcement after the close Thursday that it is prepared to launch a tender offer for any and all of Global Crossing Ltd.'s $2.25 billion bank debt. The tender offer would be priced at $210 per $1,000 of bank debt, or $472.5 million in total, Prospect News reported Thursday.

Global Crossing's bonds opened at 4.5, were bid up to 5½ at one point, and closed at 4 7/8 bid, 5¼ offered a trader said.

"A few weeks ago the bonds were at 3-4, then they were up to 6½ when the rumors about XO first floated around," the trader said. "But now the news has sort of been priced in."

A trader at another desk had similar closing levels but said he had not seen any movement during the session.

Global Crossing's term loan B closed at 20.48 bid, 21.56 offered while the revolver closed at 20.8 bid, 21.8 offered, according to LoanX.

The single condition necessary for the tender offer to go ahead is the termination of the agreement for Florham Park, N.J.-based Global Crossing to be acquired by Singapore Technologies Telemedia Pte. Ltd., according to the news release.

Because various Global Crossing creditors have questioned the value of XO's recent purchase offer comprised of cash and securities valued at $700 million, XO said it is now prepared, as an alternative, to offer $700 million in cash to acquire all of the assets of Global Crossing as a "Stalking Horse" bidder in a Section 363 sale, the release said. This alternative offer will be subject to higher and better offers from third parties through a Bankruptcy Court administered auction process.

Fleming Cos. said on Friday it is exploring a possible sale of its grocery wholesale business as it closes underperforming units, according to a news release.

Fleming's 10 1/8% senior notes due 2008 were quoted at 10.5 bid, 11.5 offered, a half point higher than Thursday when they were seen at 10 bid, a trader said. Fleming's bank debt was quoted at 85 bid, 86 offered, unchanged from Thursday.

"I think everyone is taking this as good news, they're moving on, streamlining and getting healthier," a trader said.

The company also said it has received "multiple expressions of interest" from potential financial and strategic buyers for its other key business, Core-Mark, a unit which Fleming bought in April 2002 to expand into the convenience store distribution market.

The Dallas-based grocery store operator said that in order to further concentrate resources on restoring high quality customer service at its core operations, it has begun the process of streamlining the grocery wholesale business - focusing on the most profitable units - as it closes selected facilities, where appropriate.

The company said by the end of next month it will close divisions in Geneva, Ala.; Lafayette, La.; and Superior, Wis.

Fleming did not identify in the release who the interested parties for its businesses were.

Conseco Inc.'s extended notes were up one point at 47 bid, 50 offered, a trader said, after the company announced it has reached an agreement with some dissenting creditors which should give it enough votes to win approval for its reorganization plan. Also helping the bonds was settlement of a dispute with New York City developer Donald Trump.

Conseco filed a ballot report with the bankruptcy court that contained the voting results. The company said it has been in discussion with creditors who voted against the plan, and intends to file an amended plan and certain creditors are expected to amend their votes to support the plan. Conseco said it now believes that there will be sufficient votes for all classes to accept the plan, other than the trust originated preferred securities, who continue to object.

Conseco will accept the amended ballots, and intends to file a third amended plan that will address most of the remaining unresolved objections. The confirmation hearing began on June 13.

In addition, Trump and Conseco have reached an agreement on a long-standing dispute over control and distribution of profits of the General Motors Building on Fifth Avenue in New York, and have mutually agreed to sell the building.

A news release said the terms of sale are confidential.

Conseco is a Carmel, Ind.-based insurer.

HealthSouth Corp.'s 7 5/8% notes due 2012 were quoted at 73.5 bid, up about a half-point from Thursday. The Birmingham, Ala.-based hospital operator has been in the news this week with a new round of allegations about its accounting.

A trader said of HealthSouth's bonds: "Everybody's shorting into shorts - everyone is trying to short the paper but the bonds stay up because there's a lot of buy-ins going on."

He explained that people short the bonds because they think bonds are going to go lower. Everyone is trying to do the same thing because they all think the bonds are going to go lower because of the company's shaky situation, but "sooner or later," the other party (that loaned the bonds that were shorted) "is gonna want delivery" of the bonds, the trader said.

"Everybody [who sold] is scrambling to buy the bonds back [to cover the short] because they're being bought in, because they can't deliver. A lot of the reason the paper is up is people are being bought in because they can't deliver the bonds. It's just wild," he said

"My question is are the bonds worth where they are trading or is it because of technical shorts in the Street? It's just mind-boggling to see what's going on," he added.

Air Canada traded early in the session at 38.5 bid, a trader said. He added that the 10.25% notes closed the session at 38 bid, 40 offered.

(Paul Deckelman contributed to this report.)

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