Winn-Dixie bonds steady on hurricane insurance; Salton eases; Mirant bank paper up

By Ronda Fears

New York, Oct. 8 - Jacksonville, Fla.-based supermarket chain Winn-Dixie Stores Inc. said its insurance policies fully cover damage from the foursome of hurricanes that have struck the Southeast United States in recent weeks, which helped steady its bonds as stock dropped sharply on a perception that retail sales will be hurt badly by the storm wreckage.

Oil passing $53 a barrel Friday gave holders of Trico Marine Services Inc. paper courage to bump up the offer by 1 point to 49 but the bids remained at 47 for the 8 7/8% notes. The November crude oil contract rose 64 cents on Friday to settle at $53.31, pushing oil prices up $3.19 for the week.

Traders attributed the lack of buying activity in the Trico Marine paper to a shortened session Friday as bond trading wrapped an hour early. In fact, trading was thin across the board as bond traders were eager to get an early start on the three-day weekend as the credit markets are closed Monday for Columbus Day.

Tekni-Plex Inc.'s 12¾% subordinated notes due 2010 edged up about a quarter-point Friday to 82.25, with no fresh news, although a trader remarked that the bonds had been steadily dropping in the past couple of weeks from the 85 area. He said the 8¾% senior secured notes due 2013 are rarely seen; he pegged that issue at 88, down from around 92 a couple of weeks ago.

In mid-September, the plastic goods manufacturer warned of an upcoming net loss that would bust the financial covenants on its bank revolver and term loans, which caused a negative credit review while Tekni-Plex negotiates bank waivers.

The aaiPharma Inc. 11½% senior subordinated notes due 2010 firmed a tad on Friday, too, gaining about a half-point to 73 bid, 75 offered. A distressed debt trader also noted that aaiPharma shares rose sharply Friday, gaining 21 cents, or 11.6%, to end at $2.02 on heavy volume.

"Besides short coverings, there is just a more positive sentiment on aaiPharma's future," the trader said. "It probably was extremely oversold after skipping the coupon [payment on the bonds]. There are more people now thinking they will make the payment within the grace period, that it's not a near-bankruptcy situation, so the risk-reward scenario at these levels is fantastic."

Mirant Corp. paper was firmer, too, though sans any impetus from the news tape on the Atlanta based independent power producer's bankruptcy case. Yet, the bank paper gained about a point to 65 bid and the 8.30% notes due 2011 added about a quarter-point to 88 while the 8½% notes due 2021 were flat at 87. The Mirant 2.5% convertible notes also edged up a bit to 64½ bid, 65½ offered.

Elsewhere, RCN Corp. bonds were knocked off by up to 3 points as the company reported a net loss of $26.63 million for August.

RCN's 10% notes due 2007, 11 1/8% notes due 2007 and 11% notes due 2008 were all at 51 bid, 53 offered, down 1.5 points. Its 9.8% issue due 2008 was down 2.5 points while the 10 1/8% due 2010 fell three points.

Salton Inc.'s bonds were slightly easier but traders said there is increasing optimism that the company will be able to refinance the 2005 notes, as well as pressure from bondholders to do so in a timely and prudent manner.

Winn-Dixie damages covered

Late Thursday, Winn-Dixie said it expects to be fully covered for losses due to Hurricanes Charley, Frances, Ivan and Jeanne beyond the $10.3 million deductible on its insurance policies. Plus, the company asserted that its liquidity position is strong at $453 million as of Sept. 22, the end of fiscal first quarter 2005, which was up from $448.5 million at June 30.

A distressed debt trader said that helped prop up the bonds but he noted that Winn-Dixie shares plunged following disappointing retail sales reports from the sector on Thursday, which served to deepen concern that Winn-Dixie's fiscal first quarter results will be hurt badly by the storm damage.

He said analysts are looking for a loss of 5 cents a share from Winn-Dixie for its fiscal first quarter, compared with a year-ago profit of 1 cent a share.

Winn-Dixie's 8 7/8% notes due 2008 were basically unchanged at 88. The issue fell sharply last month when the hurricanes rocked Florida and the Gulf of Mexico, and that damage was compounded on news the grocery chain's long-time chairman, A. Dano Davis, would leave the company. Winn-Dixie shares plunged 35 cents, or 8.62%, to close Friday at $3.71 amid heavy volume in an otherwise slow day.

Winn-Dixie plans on schedule

Also, Winn-Dixie said its ongoing lead market initiative in the Miami and Ft. Lauderdale, Fla., area remains on track despite the hurricanes. To date, the company has completed 18 store makeovers as planned and is schedule to complete a total of 60 of the 92 stores targeted for remodeling by Thanksgiving.

During fiscal first quarter, Winn-Dixie said it received cash proceeds of about $15 million from the sale of assets. Plus, since the end of the quarter on Sept. 22, it has pocketed $49 million from payments on its fiscal 2004 income tax receivables, which are not reflected in fiscal first quarter cash balances.

Extended store closings across the company's territory, including the Bahamas, as a result of the recent hurricanes have been limited, Winn-Dixie said, with most affected stores reopened and operational within 24 to 48 hours.

Currently, Winn-Dixie said it still has one store closed as a result of Hurricane Charley, one store closed as a result of Hurricane Frances, one store closed as a result of Hurricane Ivan and two stores closed as a result of Hurricane Jeanne. The company's distribution centers and manufacturing facilities have not been affected significantly and are fully operational.

Salton eases, but hopes ablaze

Salton, the company that sells former heavyweight boxer George Foreman's signature grills among other small appliances, softened a tad Friday but traders said refinancing hopes are strong among bondholders trying to exert some muscle to force the company to refinance.

The Salton 10¾% senior notes due 2005 eased to 92¾ on Friday from 93½ on Thursday, a trader said, while the 12¼% notes due 2008 were pegged unchanged at 831/2.

"The 10¾ [Salton bonds] are the more active issue and they are moving purely on refinancing speculation," a sellside trader said. The bonds have been battered because the market is saturated with the George Foreman Grills, which has been a key source of revenues that's now drying up.

Lately, though, there have been some big buyers sidling up to the table for Salton bonds and they are hoping to influence the company's refinancing strategy.

"There is a general mood among the big players that appears to be positive," the trader said. "Salton has rallied pretty smartly especially since there was a big purchase in September."

Third Point piles on Salton

In a letter dated Sept. 20 and on file at the Securities and Exchange Commission, Third Point Management Co. LLC managing partner Daniel Loeb noted that Third Point recently loaded up on the Salton bonds, and stock, while other long-time investors are bailing out because of weak performance.

Loeb said Third Point bought 900,000 shares, representing 7.9% of outstanding Salton shares, plus "significant" stakes in the 10¾% and 12¼% bonds.

Salton's investors have been burned, and Loeb pointed out that in 2000, Salton shares traded at an average price of $34.20 after having reached a high of $60.875 in February of that year. On Friday, the stock ended at $6.54, down 21 cents, or 3.11%, on the day.

"The series of disappointments unleashed by this management team reached a crescendo on May 11, 2004 when the company released disappointing quarterly sales and failed to comply with the consolidated fixed charge ratio contained in its senior secured revolving credit facility, after which your stock dipped to $2.50 per share and your bonds plunged into the 40s," Loeb said in the letter.

A review of Salton's major investors "reveals that dozens of your institutional holders, fed up with management's blunders, and the prospect of bankruptcy, jettisoned their positions prior to the June 30th filing date," Loeb said.

But, he said, after exhaustive due diligence, Third Point believes Salton can achieve its stated goal of $40 million in cost savings. Thus, he added, Third Point acquired a meaningful stake in the company's debt and began acquiring stock while others such as Royce & Associates "dry-heaved their stock holdings."

Loeb lights fire under Salton

Third Point is obviously trying to persuade Salton management regarding its financial situation, and the refinancing of the bonds specifically, the distressed trader said Friday.

"Notwithstanding the company's past bungling, we are encouraged by recent results and your success in turning the company around from its nadir," Loeb said, noting that Salton shares have nearly doubled from where Third Point bought their position.

With short-term liquidity issues addressed by a "vulture loan" from Silverpoint Finance LLC, domestic sales expand for the first time since 2002 in fourth quarter earnings and the $40 million in cost saving apparently within reach, he said, "we believe the company has ample options to refinance its 10.75% bond."

"However, we urge the company only to consider options that maximize value for all stakeholders. Given our view that the 'sum of the parts' of Salton is worth significantly more than the $400 million of debt outstanding (assuming and average draw on the revolver), we strongly oppose any restructuring scenario that would involve dilution to your shareholders through either issuance of equity at these levels, a convertible debt offering or exchange of equity for debt to current bondholders."

Loeb asserted in the letter that, given the successful turnaround underway at Salton and the significant asset value in its brands, the company should wait and demonstrate improved operating results via continued cost-cutting initiatives and then pursue a comprehensive refinancing through a global credit facility to repay the 2005 bonds and meet current operating needs.

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