Interstate Bakeries bank debt lower on downgrade; Winn-Dixie bonds fail to rally

By Paul Deckelman and Sara Rosenberg

New York, Sept. 1 - Interstate Bakeries' Corp. bank debt was quoted lower, and on the wide side Wednesday, following a downgrade in the debt rating of the Kansas City, Mo.-based wholesale baking company's paper's to Caa1 from B2 by Moody's Investors Service.

Among bond investors, Tuesday's big loser, Winn-Dixie Stores Inc., made a feeble effort to tag along with a rally in the Jacksonville, Fla.-based supermarket operator's stock - but that fell flat, and the bonds ended little changed.

Interstate Bakeries' bank paper was quoted by one trader on Wednesday at 91 bid, 94 offered, and a bit tighter than that by a second trader, at 91.5 bid, 93 offered

On Tuesday, the paper was quoted at 92 bid, 95 offered, the first trader said, adding that the 96 bid that had been heard by some other market sources was really an "old quote".

Although Wednesday's decline thus may not seem like a very big drop, market sources pointed out that the paper had started off the week in the low 98s - before news emerged that the maker of Wonder Bread, Hostess Twinkies and Drake's Cakes had missed its 10-K 2004 annual report filing deadline with the Securities and Exchange Commission for a second time.

And now, to make matters worse, Moody's downgraded Interstate Bakeries ratings due to "uncertainty about the company's financial position and liquidity pending effective implementation of the new financial reporting systems and filing of its FY04 10K, combined with continued negative sales and earnings trends and tight liquidity under bank covenants going forward," the rating agency explained.

"The downgrade also takes into account the risks associated with the company's process of significantly restructuring its operations to reduce costs, while, at the same time, operating in a very competitive business environment with weak category demand trends, much better resourced competitors, and tight liquidity," Moody's added.

In distressed-bond activity, Winn-Dixie's 8 7/8% notes due 2008 "tried to run as the stock got better, and tried to move up to 90," a trader said. But the effort fell flat, and he saw those bonds going home offered at 87.5 bid.

Another trader saw the bonds closing at 88.5 bid, 89.5 offered, "about where they were" at the end of Tuesday's dealings.

On Tuesday those bonds had fallen about five points, to around the 87-88 level, in line with a giant stock plunge driven by renewed media and analyst speculation that the company was headed for bankruptcy, eventually, fears that the coming Hurricane Frances might wreak havoc in Winn-Dixie's home turf in Florida, Georgia and the Carolinas, and news that the company and several present and former executives had been named as defendants in several class-action suits filed in the Florida federal courts by stockholders dismayed by the sharp slide the company's shares had taken ever since it reported an unexpected profit decline early in the year.

On Wednesday, the shares - which had plunged 14.72% on Wednesday - rebounded by 25 cents (6%) to $4.42, on New York Stock Exchange volume of about 4.6 million shares, better than three times the usual.

Delta lower but little trading

Elsewhere, most traders saw little activity in the bonds of Delta Air Lines Inc., although one did see the Atlanta-based air carrier's 8.30% bonds due 2029 down a little, at 28 bid, 28.5 offered, as "the airlines continued to weaken."

Delta extended to Sept. 9 its previously announced solicitation of consents from the holders of some $1.7 billion of secured equipment trust and pass-through certificates. The company is seeking indenture changes that would allow it to possibly buy the bonds back as part of an out-of-court restructuring - but a majority of the certificate holders have so far refused to go along with idea, and have demanded more information from the company about its turnaround plans (see "Tenders and Redemptions" elsewhere in this issue).

Adelphia gains

A market source saw better levels on several Adelphia Communications Corp. issues, although no fresh news was seen out on the bankrupt Greenwood Village, Colo,-based cable operator.

He quoted Adelphia's 10¾% notes due 2011 at 94 bid, up from 92.5 previously, saw its 8 3/8% notes due 2008 at 89, up from 86.5, and pegged its 10¼% notes due 2006 at 91, up from 89.5. However, he saw other Adelphia issues little changed, including its 8 7/8% notes and 11 7/8% notes, both due 2007, at 106.5 and 124 bid, respectively.

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