Winn-Dixie bonds continue sliding; Owens Corning bank debt gyrates around

By Paul Deckelman and Sara Rosenberg

New York, Feb. 11 - Winn-Dixie Stores Inc. bonds were getting pounded Friday for a second straight session following the Jacksonville, Fla.-based supermarket operator's report Thursday of poor fiscal second-quarter numbers.

Owens Corning's bank debt meantime gyrated around on Friday before finally coming to rest essentially unchanged, traders said.

Winn-Dixie's 8 7/8% notes due 2008 on Thursday had plunged to levels around 72 bid from prior levels at 88 on the poor results and analysts' concerns that the company's vendors might worsen its liquidity position by imposing tougher payment terms - as some have already done.

On Friday, those bonds fell even further, all the way down to 62 bid, before coming back from that low point to end around 66 bid, 67 offered. Still, the bonds finished down six points on the day and down a whopping 22 points since the numbers came out.

"There was a lot of volatility" in the name Friday, a trader in distressed bonds said, noting the down-and-up movement.

Also on Friday, Standard & Poor's lowered the company's corporate credit rating to CCC from B- , citing continued high operating losses and reduced liquidity. The outlook is negative.

S&P noted weak EBITDA levels, with EBITDA for the second quarter ended Jan. 12 of negative $13 million. For the first half, things were not much better - EBITDA was only $11 million and free cash flow was negative by $215 million.

"High inventory levels, a $100 million outflow for accounts payable, and some tightening of credit by some vendors contributed to the negative cash flow," S&P analyst Mary Lou Burde wrote in her downgrade message.

The ratings, Burde continued, "reflect the company's well-below-average operating performance, increasing competitive pressures from traditional and nontraditional food retailers, and weak cash flow protection."

The analyst further noted that although the company's ongoing restructuring "should enable the company to exit unprofitable markets, Standard & Poor's concludes that Winn-Dixie will be challenged to stem the severe decline in sales and profitability in light of intensified competition and the need for better execution."

While acknowledging that Winn-Dixie "should have sufficient liquidity to fund its near-term operating and capital needs," Burde said this would be true only so long as existing bank and vendor financing remains intact.

"But improved operating results or additional funding will be needed to execute longer-term strategic initiatives. If operations do not improve and cash needs are greater than expected, liquidity could diminish further and the rating could be lowered," the ratings agency message concluded.

Winn-Dixie posted a net loss for the quarter of $399.7 million ($2.84 per diluted share), widening out from a year-earlier net loss of $79.5 million (57 cents per share).

The company's recently appointed president and chief executive officer, Peter Lynch, said on the conference call following the earnings release Thursday that based on his observations during his first two months on the job, "the company has not been capitalizing on its competitive advantages. It's been trying to do too many things at once, and has lost the focus on sales," which were down 4.7% in the quarter.

Owens Corning loans volatile

In bank loan trading Friday, Owens Corning's paper traded as low was 104 bid, 105 offered early in the session, but moved back up to 105 bid, 106 offered by late afternoon, to end the basically unchanged, according to a trader.

"I haven't seen anything that would have pushed it down. Maybe it's profit taking," he said.

Owens bank debt has volatile all week, as the paper began last Monday morning at 90 bid, 92 offered - only to rally higher by about 17 to 18 points by Wednesday evening, pushed up by investor speculation about an assumed positive outcome from a bankruptcy court hearing on substantive consolidation that ended Monday afternoon, but which had still not yielded an actual verdict by Friday evening.

On Thursday, the bankrupt Toledo, Ohio -based building materials company's paper had finally started to settle in a little after the big gains earlier in the week, moving to down to 105 bid, 105.5 offered from highs of around 107 bid, 108 offered.

The company's bonds - which had recently been in the upper 70s but which then started coming down-were seen at 62 bid, 64 offered, down from prior levels around 64.

Those bonds were being pushed down by several factors, including both the possibility of an unfavorable ruling in the substantive consolidation court battle between the bank debt holders and the bond investors, as well as an apparent temporary stalling of momentum in Washington on efforts to craft a mechanism for paying the claims of those plaintiffs alleging asbestos-related medical problems, while also shielding companies like Owens Corning and Armstrong World Industries, the bankrupt Lancaster, Pa.-based floorcovering maker, from further lawsuits. Both were among dozens of companies forced into Chapter 11 in the past few years by a deluge of asbestos health claims.

Armstrong's bonds meantime were seen at 67 bid, 69 offered, down about two points from recent levels.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.