Winn-Dixie bonds plunge on poor earnings; Mirant paper firms

By Paul Deckelman and Sara Rosenberg

New York, Jan. 30 - Winn Dixie Stores Inc.'s bonds plunged sharply on Friday after the Jacksonville, Fla.-based supermarket operator reported a quarterly loss versus a year-ago profit, and its debt rating was cut several notches by Standard & Poor's.

In bank loan trading, Mirant Corp.'s 2003 paper was heard to have strengthened.

Winn-Dixie's 8 7/8% senior notes due 2008, which had traded as high as the 103-104 bid area earlier in the week before softening Thursday to around 101-102 bid, plunged as low as 86 Friday and went home quoted around that level after it reported a net loss of $79.5 million (57 cents a share) in the fiscal second quarter ended Jan. 7 - a sharp turnaround to its year-ago performance, when it earned $91.4 million (65 cents a share).

"They had horrible earnings, as expected," a trader said - although the magnitude of the company's problems surprised even a Wall Street which had been looking for a sizable fall-off in earnings but still thought Winn-Dixie might eke out a quarterly profit in the area of nine cents per share.

Traders said that Winn-Dixie's economic fundamentals did not justify the bonds trading at a premium to par, given the intense competition it has faced in many of its markets by the entry of Wal-Mart Corp. They noted that the bonds had been lifted to artificially high levels by the recent junk market surge, which caused even shakier credits to run up, handsomely in some cases. "A rising tide lifts all boats," one said.

The first trader also observed that with many people expecting Winn-Dixie to fall and having shorted it, "people had been short and there was a big short squeeze" that took the bonds up to their recent highs - before they came tumbling down on Friday.

Winn-Dixie stock was likewise on the downward conveyer belt Friday, plummeting $2.53 (27.83%) to close at $6.56 in busy New York Stock Exchange dealings of 24.5 million shares, around twenty times the usual activity level.

Winn-Dixie write-down

Key factors in the quarterly loss were a $36.4 million asset write-down which the company took after reviewing the performance of its 1,078 stores in the southeastern U.S. and the Bahamas and concluding that projected cash flows from certain stores were less than the carrying amount of related assets for those stores, and thus determining that the assets had been impaired.

Winn-Dixie said that it would embark on a turnaround campaign aimed at cutting costs by $100 million, which would include the sale or closure of non-core markets. It also suspended its quarterly stock dividend indefinitely.

Standard & Poor's lowered Winn-Dixie's corporate credit rating three notches to B from BB previously and placed the ratings on CreditWatch with negative implications.

"The rating actions reflect a severe and rapid deterioration in Winn-Dixie's operating performance (as demonstrated by very poor results in the fiscal 2004 second quarter) and concerns that a failure to improve the business could strain financial resources," S&P credit analyst Mary Lou Burde wrote in her downgrade message.

She noted that the CreditWatch listing "is based on concerns that continued poor cash flow, if not improved, could diminish liquidity. Liquidity is marginally adequate for the short term given cash needs for operations, capital spending, and potential restructuring charges."

Mirant loans firm

Elsewhere, Mirant Corp.'s 2003 bank debt paper firmed a bit on Friday, with trades taking place around 64.5, a trader said. On Thursday, the Atlanta-based energy company's paper had been quoted wide at 63 bid, 65 offered.

"It's been coming in pretty hard for the last three days. It solidified a little bit," the trader said.

The paper was said to be hit in the second part of the week, coming off highs of 66 in reaction to a drop in bond levels.

Also in the bank-debt sphere, Calpine Corp.'s CCFC II revolver was quoted at 98.5 bid, 99 offered near the end of the day, after trading around a bit over the past two days on refinancing speculation, several traders said. The bank debt opened Friday morning at 98 bid, 99 offered.

On Thursday morning, the San Jose, Calif.-based independent power producer's bank debt had been seen trading at 97.5; then the bid moved up to the low 98 area "as news got out about an unscheduled bank meeting talking about restructuring and possibly taking out this debt," a trader said.

The revolver comes due in November of this year and rumors have been circulating that the company is going to act soon in order to refinance this debt.

There was some scuttlebutt in the bond pits Friday that Calpine might be trying to line up as much as $2 billion in new borrowings.

Revlon 12s hold gains

Also among bond market players, Revlon Inc.'s 12% notes scheduled to mature on Sunday (payable on Monday) were heard having held the gains they notched on Thursday, when the bonds were heard to have jumped 10 points to around 93 bid, 95 offered on investor expectations that the bonds would, in fact, be paid off - even though many investors are wary of Revlon Chairman Ronald O. Perelman, who on several occasions past has unpleasantly surprised holders of debt in his various companies.

A trader quoted the 12s at 94 bid, 96 offered, declaring "they're [up] there," despite the concerns about a possible last minute surprise from the wily billionaire. He acknowledged, however, that investors were still showing some skepticism at this late date by having not taken the bonds all the way up to par, where a bond set to mature in a couple of days would normally be trading.

Another trader quoted the 12s as having been offered as high as 99, although he could not give a corresponding bid level.

Traders said the troubled New York-based cosmetics company's other bonds had not really moved in tandem with the maturing issue, its 12% senior notes due 2005 seen at 105 bid and its other bonds pegged in the 70s.

Adelphia Communications Corp. bonds were "pretty much status quo," a trader said, quoting them as hanging in either around the 96-98 bid level for the lesser claims or 99-par bid for the better claims.

However, another trader saw the better claims at 103 bid, 104 offered and the lower-claim paper at 100.5 bid, 101.5 offered, both down half a point.

A market observer quoted the bankrupt Denver-based cable TV operator's 10½% notes coming due later this year at 100.5 and saw its 10¼% notes due 2006 at 98.75, saying they "didn't move at all," even though a trader said word was out that Adelphia would likely aim to come out of Chapter 11 by the end of March.

At another desk, Adelphia's 9 7/8% notes due 2007 were seen half a point better at 100.5 bid.

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