Fleming term loan B down to 90 amid continuing troubles

By Sara Rosenberg

New York, March 12 - Fleming Companies Inc. bank debt has seen a relatively dramatic drop in recent times with the company's term loan now quoted at 90 bid and 92 offered, according to traders. At the end of February, the bank debt was being quoted in the 97/99 range.

Over the past month or so, the Lewisville, Tex. wholesale package goods distributor has been plagued with troubling news, including management changes, contract termination with Kmart and lower-than-expected financial results.

But the decline in the bank debt still surprised one trader, who said: "If the bank debt is secure, which it is according to my understanding, why isn't it trading closer to 97/98?"

He noted that the company's bonds have been suffering the same fate, dropping considerably over the past few weeks.

One market professional offered some general market factors that may be influencing Fleming's bank debt, such as: asset coverage; if there is enough money how long will it take to pay out; irrationality of the marketplace; and nuisance value, meaning how much is it worth to the investor to get his money now as opposed to waiting until the chaos is over.

Most recently, the company announced very late on March 3 that Mark Hansen, chairman and chief executive officer resigned. Peter S. Willmott was named as interim chief executive officer and president and Robert Allen was given the new position of acting chief operating officer.

At the end of February, news emerged that the previously reported on investigation into business practices became a more informal investigation by the Securities and Exchange Commission.

Also in February, Kmart and Fleming announced that they had terminated their supply relationship by means of a rejection of the parties' 2001 contract through Kmart's chapter 11 reorganization. Following the contract termination, Fleming's term B bank debt dropped to around 97 bid, from around 98½ to 99.

However, this drop in levels was viewed by some as a possible investment ploy, with one fund manager explaining that Fleming is in the process of trying to sell retail stores and if the retail stores are sold, then paydowns on the bank debt are expected. The fund manager continued to say that people were trying to use the Kmart news to get a cheap deal and take advantage of what could be a substantial paydown in the near future at par.

Fleming is in the process of selling 110 existing price-impact stores that operate under the Food 4 Less and Rainbow Foods banners. With the proceeds from the asset sales, Fleming plans on repaying its entire term loan.

In January, the company had to amend its debt/EBITDA covenant due to fourth quarter EBITDAL results, and the anticipated amount and timing of the proceeds from the retail store divestiture.

A lender call discussing the amendment was held following the release of worse-than-expected financial estimates in mid-January, at which time the company also updated participants on the progress of the previously announced asset sales.

The company explained during the call that the sale of 110 existing price-impact stores that operate under the Food 4 Less and Rainbow Foods banners are going slower than planned and that the asset sales are expected to bring in less than the previously anticipated amount of $450 million.

Meanwhile, Charter Communications Inc.'s recent rally seemed to slow down on Wednesday with the company's term loan B quoted at 85½ bid, 86½ offer and the revolver quoted at 82 bid, 83 offer.

On Tuesday the B loan was quoted in the mid 86's and on Monday the loan traded at 85 7/8.

The St. Louis cable company's forward momentum was attributed by some to Adelphia Communications Corp.'s bank debt rally and was attributed by others to the bank debt simply trying to catch up with the bonds of cable companies that have moved up over the past two weeks.

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