Fleming falls another 5 points; AMR rises on union talks

By Carlise Newman

Chicago, March 31 - Fleming Cos. dropped like a hot stone in hand on Monday, feeling the pressures of past weeks and fresh news, although expected, from Kmart Corp., which said it is restructuring its headquarters and eliminating several hundred additional positions. HealthSouth Corp.'s debt was firm on the news that the company had fired its CEO, Richard Scrushy.

In the airline sector, American Airlines narrowly missed filing bankruptcy Monday with an announcement that it had reached a wage concession deal with its mechanics' union.

Fleming's dismal news in recent days has sent the company's bonds on a rapid spiral downward.

The company was pummeled Friday after it warned that unless it gets additional near-term financing, its 2002 financial statements could include a going-concern warning. The Lewisville, Tex.-based consumer-goods supplier said in a release that based on talks with its lenders, it doesn't expect to close on an amendment to its credit facility. Fleming said it is now in talks with alternative financing sources.

Fleming also said it would seek a 15-day extension to file its Form 10-K annual report for fiscal 2002 from the SEC. The company said the extension is necessary to "properly account for and assess the significant business changes affecting the company."

The company's 10 1/8% senior notes were seen down 5 points Monday at 19 bid/21 offered, after Friday's closing price of 24 bid/26.5 offered.

Not helping was news from Kmart that it began restructuring of its corporate and headquarters operations. The company said it would eliminate approximately 400 positions at the corporate headquarters and 123 positions nationally that provide corporate support, and would rid itself of 137 positions that are currently open. Kmart said it would notify employees Monday.

Troy, Mich.-based Kmart, which operates discount department stores nationally, expects to emerge from bankruptcy on April 30.

Good news from American Airlines lifted the company's bonds slightly. American Airlines said it reached a wage concession deal with its mechanics' union as it remained in 11th-hour talks with two other unions to reach a deal for $1.8 billion in total cost cuts, possibly averting a bankruptcy filing later in the day.

In the event of tentative deals from all three unions' leadership, reports said the airline was leaning toward letting rank-and-file workers ratify the agreements, a 15-day process.

The tentative Transport Workers Union agreement provides for $620 million in annual wage and benefit cuts. Concessions from mechanics will make up $315 million and will include a 17.5% pay cut.

But the announcement only lightened bankruptcy rumors briefly.

"At this point it's better to wait until the end of the day...to see the whites of their eyes so to speak. They could still file," said a distressed debt trader.

"Did they file yet?" asked another.

American Airlines' 9% notes due 2012 rose "a point or two" to 12 bid/15 offered after dropping to 10 bid/12 offered Friday. Another desk said the 9% notes did not move.

On Friday, two bankers in a New York Times report said the company may put together $1.5 billion in debtor-in-possession financing, with potential lenders Citibank, J. P. Morgan Chase and the CIT Group. As of Monday, there were reports saying talks on the DIP financing were nearly complete.

HealthSouth's bonds were seen firm Monday, according to a distressed trader. Its 7 5/8% notes due 2012 were quoted at 42 bid/44 offered, in the same range as Friday.

The company fired chief executive and chairman Richard Scrushy, the central figure in a probe into more than a billion dollars of possible accounting fraud, and a third company executive pleaded guilty to criminal fraud charges on Monday.

HealthSouth, the nation's largest operator of outpatient surgical centers and rehabilitation clinics based in Birmingham, Ala., said it informed Scrushy of its decision to remove him in a letter dated Sunday, and said he would not be entitled to severance payments or benefits.

On Friday, HealthSouth bondholders hired attorneys to protect their interests in the event of a bankruptcy filing by the financially strapped rehabilitation chain that has been charged with accounting fraud, a spokeswoman for the law firm said on Friday. The bondholders, looking to ensure that bank creditors do not get priority over them in repayment of debts should the company file for Chapter 11 bankruptcy protection, retained Brad Scheler of the law firm Fried, Frank, Harris, Shriver & Jacobson, the spokeswoman confirmed.

In other distressed news Monday, Hayes Lemmerz International Inc.'s bank debt traded in the high 70s. On Friday, the company announced it moved to extend the deadline for submitting votes on its plan of reorganization from March 28 to April 4. The extension covers two classes of its creditors, holders of the pre-petition credit facility secured claims and holders of synthetic facility secured claims and provides them additional time to complete their evaluation of the plan.

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