Fleming continues to crumble; Petrobras prices upsized deal; Vivendi unveils $1 billion

By Paul Deckelman and Paul A. Harris

New York, March 24 - Bonds and shares of the beleaguered Fleming Companies Inc. continued to steadily erode on Monday, with the company's subordinated issues quoted at barely more than 10 cents on the dollar.

In the primary market, Petrobras priced an upsized $400 million issue, while syndicate sources heard about two notable upcoming deals; Viviendi Universal was expected to begin roadshowing a two-tranche €1 billion mega-deal in dollars and euros while bankrupt Canadian transportation and waste management operator Laidlaw was said to be nearing its exit from a long stay in Chapter 11 with a $300 million senior secured offering said to be part of the revamped company's expected new financing.

"I think people are waiting on the sidelines and watching for some good news to come out of Iraq," one sell-side source said.

"We keep hearing that if good news does come from the war money will start draining out of high yield and get put back into equities," the source added.

"We don't see it that way, though," said the official. "We believe that for right now that money is likely to remain in fixed income."

News surfaced during Monday's session that Vivendi Universal will bring two tranches of high yield notes due 2010 (expected ratings B1/B+) in dollars and euros totaling €1 billion. The roadshow will begin Wednesday via the five-way bookrunning team of Goldman Sachs & Co., JP Morgan, Banc of America Securities, RBS and Salomon Smith Barney.

The Rule 144A/Regulation S notes will be coming with a €2.5 billion credit facility, with proceeds slated to refinance the troubled French and American media giant's debt.

Also on Monday Prospect News learned from a capital markets source that Laidlaw Inc.'s exit financing from Chapter 11 will include $300 million of new senior secured notes.

The company also plans a new $825 million credit facility (BB), via Citigroup and Credit Suisse First Boston, sources said. The bank portion of the financing is expected to launch sometime during the next fortnight, possibly as early as Wednesday.

Finally on Monday terms emerged on an upsized offering from Petroleo Brasileiro SA. The Brazilian state oil company increased its offering to $400 million from $200 million and priced the notes due 2008 at 98.65, according to an informed source. The notes came with a yield to maturity of 10½% and a yield to put of 9.527%.

Bear Stearns & Co. was bookrunner on the deal, which priced off the investment-grade and emerging markets desks.

In the secondary market, a trader noted that "with the exception of Fleming, which was all over the map, things held up pretty well, considering" - meaning, the big stock market slide, triggered by indications that the war in Iraq may not be such a quick and easy campaign after all, failed to really have much impact on the junk market.

This was yet another example of a phenomena that analysts and other market participants have recently noticed - essentially, the de-coupling of the junk market from stocks.

Certainly, the trader said, "we did better than stocks," although he attributed most of the junk market's ability to withstand the bad news to the sense of euphoria on which the market seems to have been floating over the past four weeks, during which time approximately $4.389 billion more has come into high-yield mutual funds than has left them, according to a Prospect News analysis of the weekly fund flow figures compiled by AMG Data Services of Arcata, Calif.

Those figures are considered by many market participants to be a reliable barometer of overall junk market liquidity trends. In the most recent week, ended last Wednesday, net inflows totaled $881.6 million, counting only those funds which report on a weekly basis and excluding distributions.

"Inflows are still keeping things afloat," even though the war news - which sparked a rally late last week in both stocks and junk bonds, once the uncertainty over whether or not there would be a war was resolved - turned less positive than that seen on Thursday and Friday.

But the trader wondered aloud "how long will it last? If things get really ugly, then the inflows [which are considered responsible for the recently strong secondary market] will stop and things will trade down."

Fleming bonds are already trading down, with the Lewisville, Tex.-based wholesale grocery products distributors notes quoted down at least five to six points Monday, not so much on any negative news, as on just the feeling, a trader said, that with all of this company's myriad of problems, "nobody likes them."

Fleming's 10 1/8% notes due 2008, which ended bid at 38.5 on Friday, the trader said, "opened up Monday offered at 37.5, and then "just fell out of bed," sliding as low as 31.5 bid/32.5 offered, before they "came back a little," to close at 32 bid/33 offered.

He surmised that Fleming's bank debt was heard to have traded at around 83, well down from previous levels, "and that spooked out the bondholders."

At another desk, an observer said Fleming's 10 5/8% subordinated notes due 2007 dipped as low as 10.5 bid during the session, before closing at 12, down about a point and a half.

Another trader noted that the subordinated paper "didn't have much room to fall, in sliding to a wide 10 bid/15 offered from prior levels around 13, with its 9 7/8% notes trading at similar levels.

Fleming shares were down seven cents ($5.88) to $1.12 in New York Stock Exchange dealings.

Elsewhere, despite the bad news from the war front - which sent oil prices soaring, on the theory that Iraq's oil will be off the market for quite a while - airline bonds, which had gained altitude on Friday as oil prices slid, "hung in there," a trader said, even as shares of all of the major carriers slid 20% or more.

He cited a front-page Wall Street Journal story indicating that Washington "may do something' to help the battered industry out.

He quoted Continental Airlines' 8% notes due 2005 - which had zoomed to about bid levels around 52-53 on Friday from prior levels in the high 40s - as having only eased about a point or so, to 50-51 bid.

While "it's a foregone conclusion" that AMR Corp. is likely to file for bankruptcy, he said, "maybe the government will come through for the others not so far along on the launch pad to bankruptcy - Continental, Delta Airlines and Northwest Airlines."

He saw AMR's 9% notes due 2012 dipping to 17 bid from 19 bid on Friday, but noted that, as was the case with Continental, "the airline bonds did not give back their gains like common [stock], which was off 20% or more."

The prospects of possible aid from Washington, plus its own cost-cutting measures - and the possibility that bankrupt rival United Airlines may fly off into history altogether - may have contributed to strength in Northwest bonds Monday; the Minneapolis-based carrier's 7 7/8% notes due 2008 were about a point better, at 51.5 bid.

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