Fleming falls again; AMR up as bankruptcy averted; CanWest brings $200 million deal

By Paul A. Harris and 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 gained after it narrowly missed filing bankruptcy Monday with an announcement that it had reached a wage concession deal with its mechanics' union.

In the primary, the week of March 31 got underway with terms emerging on a drive-by deal from Canadian newspaper publisher CanWest Media Inc., which priced $200 million of 10-year notes on the tight end of price talk, to yield 7 5/8%. That deal was true to form for current cash-heavy market conditions, which, sources have advised Prospect News, favor quick-to-market transactions.

Also during Monday's session, which took place on the final day of March 2003, Frontier Oil Corp., which is acquiring Holly Corp., was heard to be in the market with $200 million of 10-year paper.

CanWest priced a quick-to-market Rule 144A deal for $200 million of 10-year senior notes (B1/B-) at par on Monday to yield 7 5/8%. The deal, via bookrunner Salomon Smith Barney, priced at the tight end of the 7¾% area price talk.

CanWest said it would use C$275 million of the proceeds will be used to retire a portion of the 12 1/8% subordinated debentures held by Hollinger International Inc. and Hollinger Canadian Newspapers LP, which should reduce CanWest's consolidated interest expense by approximately C$12.7 million annually.

After trading began, CanWest's new notes were seen higher at 102.5 bid/103.5 offered.

Also on Monday high-yield market sources told Prospect News that Frontier Oil Corp., which announced it will buy Holly Corp. for an offering of cash and stock, plans to bring $200 million of 10-year senior notes (B2/B+) as part of the financing.

Bear Stearns & Co. was heard to be the bookrunner. BNP Paribas is a co-manager.

No timing was heard on the junk deal, although according to a Monday press release from Frontier the acquisition transaction is expected in the second or third quarter of 2003.

Also in the press release Frontier's chairman, president and CEO, James Gibbs commented: "Frontier and Holly are two of the most highly profitable public independent refining companies. This strategic combination will produce not only the preeminent Rocky Mountain refiner, but also the strongest balance sheet among its peers. The opportunity to build our enterprise through the combination of skills and assets represented by Frontier and Holly is tremendous....After diligently looking for the right opportunity for over a year, we believe this is the best possible strategic combination for both companies."

Following the merger, the release stated, Frontier will own five refineries with refining capacity in excess of 260,000 barrels-per-day, including "several highly complex, niche refineries."

Frontier, headquartered in Houston, operates a 110,000 bpd refinery located in El Dorado, Kan. and a 46,000 bpd refinery located in Cheyenne, Wyo. Holly, headquartered in Dallas, operates a 60,000 bpd refinery located in Artesia, N.M. that is being expanded to 75,000 bpd and a 7,500 bpd refinery in Great Falls, Mont. Holly also operates approximately 2,000 miles of crude oil and refined product pipelines in the west Texas and New Mexico region, in addition to Permian Basin crude gathering operations and refined product terminals. Additionally, Holly has an agreement to acquire the 25,000 bpd Woods Cross refinery in Salt Lake City owned by ConocoPhillips.

Finally on Monday a couple of news nuggets circulated the market on an anticipated offering of Allied Waste Industries $300 million of 10-year senior notes: distribution will off-the-shelf, a market source advised Prospect News.

The Scottsdale, Ariz. waste hauler announced concurrent offerings of $100 million of common stock and $300 million of mandatory convertible preferred stock under its existing shelf registration, in a Monday press release. Proceeds will be used to repay its existing bank credit facility.

UBS Warburg, Salomon Smith Barney and Credit Suisse First Boston will be bookrunners for the common stock offering. UBS Warburg, Salomon Smith Barney and Deutsche Bank Securities will be bookrunners for the converts, the press release stated.

Separately, in connection with its previously announced financing plan, JPMorgan Securities Inc. and Salomon Smith Barney Inc. will be acting as bookrunners for the company's new $3 billion credit facility. One source advised Prospect News Monday that the bonds would not come until the convert- and equity deals are completed.

With regard to the mandatory convertibles, Prospect News learned that pricing is expected after Thursday's close. It is talked 6¼%-6¾%, up 18-22.

Only one offering is scheduled to price during Tuesday's session. Dan River Inc. $150 million of six-year senior notes (B3/B-), via Deutsche Bank Securities, which came with a full roadshow, was talked last Friday at 13½% area. One market source advised Prospect News that the notes are expected to price Tuesday at a slight discount.

One sell-side official told Prospect News late Monday that in spite of a dearth of deals on the road the market presently feels strong.

"In general the feeling is that the market is still very hot," said the sell-sider. "We have tons more cash in the market. The funds flows were up again last week. For the past several weeks the fund flows, combined, have just been tremendous."

Back in secondary trading, Fleming's dismal news in recent days had already 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."

That downward trend continued Monday as the company's 10 1/8% senior notes were seen down 5 points at 19 bid/21 offered, compared to 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.

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