Aurora Foods trades higher, RCN and Primedia strengthen

By Sara Rosenberg

New York, Feb. 11 - Aurora Foods Inc., RCN Corp. and Primedia Inc. stood out in a quiet day in bank loan trading during which many participants focused their attention on Osama Bin Laden, Colin Powell and Alan Greenspan.

Helping Aurora, RCN and Primedia was improved outlooks and/or proposed asset sales.

Aurora Foods traded at 92 bid, 92½ offer on Tuesday, up about two points from previous levels, according to a trader.

"There was a lenders call at the end of last week," the trader said, explaining the gain. "Supposedly the call gave reassurance that everything is on track." However, the trader did admit that he personally has not listened in on the call.

Aurora Foods is a St. Louis producer and marketer of premium branded food products.

Indications on RCN's bank debt were a little bit better on Tuesday with an 82 bid and an 84 offer, compared to quotes late last week in the high 70s to low 80s, according to a trader. The bank debt has been moving up on news that regulatory approval was obtained for an asset sale.

Last week, the company was granted approval for the sale of its New Jersey cable systems to Spectrum Equity Investors for $245 million. RCN anticipates using proceeds from the sale for reinvestment in its current business.

Upon closing, which is expected to occur in the near future, the cable systems company will be known as Patriot Media and Communications LLC.

Currently Patriot Media has a $165 million credit facility in the primary market to help fund this spin off, consisting of a $65 million pro rata tranche with an interest rate of Libor plus 375 basis points and a $100 million term loan B with an interest rate of Libor plus 450 basis points. Bank of New York is the lead bank on the deal.

RCN is a Princeton, N.J. provider of bundled communications services to residential customers over its broadband network.

Primedia's indications were a little better as well with a 95 bid and a 96 offer, up from 93 bid, 94 offered, the trader said. The company's bank debt is improving on a lender call in which it announced a better liquidity situation and positive fourth quarter and year-end results released last week, the trader added.

Consolidated EBITDA from continuing businesses in the fourth quarter was approximately $96 million, up approximately 63% from $59 million in fourth quarter 2001. EBITDA from continuing businesses for full-year 2002 was approximately $250 million, up about 33% from $188 million in 2001. This exceeds the original percentage year over year growth targets of 20-30%, a news release said.

"The debt ratios of the company have now improved to the point that they are lower than before Primedia acquired Emap USA. In fact, having called our highest interest rate bonds last week, which were not due until June of 2004, we now have no material principal repayments of debt until 2006. In the last year, we have completed our very successful Emap USA related non-core asset disposition program, selling assets at much higher EBITDA multiples than reflected in our stock price and exceeding expectations on debt reduction. In addition, in beating our aggressive 20-30% growth target for EBITDA, Primedia's internet operations are now cash positive," commented Tom Rogers, chairman and chief executive officer, in the release.

In addition to positive results, the New York media company also announced that it has retained Morgan Stanley to explore strategic options for Seventeen magazine and its companion branded properties, which may include a sale or a strategic relationship.

Meanwhile, Fleming Cos. Inc.'s recent drop in the secondary due to the termination of the contract with Kmart Corp. is being viewed by some as a possible investment ploy.

"Fleming is still in the process of trying to sell retail stores," a fund manager said. "If they sell the stores then there should be paydowns. I think people are trying to take advantage of the Kmart news to get a cheap deal and take advantage of what could be a substantial paydown in the near future at par."

Currently the term loan B is being bid around 97, the fund manager said, adding that before the Kmart news came out the bid was around 98½ to 99.

At the beginning of the month, Kmart and Fleming announced that they had terminated their supply relationship by means of a rejection of the parties' 2001 contract through Kmart's chapter 11 reorganization.

"At this critical juncture in our chapter 11 cases, as we move forward with the plan confirmation process and, soon thereafter, emergence from chapter 11 altogether, we have determined that given the change in our store base, among other things, the Fleming supply arrangement no longer meets our needs and the rejection of the contract at this time is appropriate," said Julian Day, Kmart president and chief executive officer, in a news release about the termination of the agreement.

"Despite our mutual efforts to negotiate modifications to the supply agreement, it was clear to both parties that termination was the right solution. The basis on which the parties entered into the agreement have substantially changed, warranting an end to the relationship," said Fleming chairman and chief executive officer Mark Hansen in the release.

As previously announced, Fleming is in the process of trying to sell 110 existing price-impact stores that operate under the Food 4 Less and Rainbow Foods banners. With the proceeds from the asset sales, Fleming plans on repaying its entire term loan.

Fleming is a Lewisville, Tex. distributor of consumable goods and operator of price impact

In other news, Flowers Foods Inc. held a lender call on Tuesday morning to discuss amending its credit facility to allow for the sale of its Mrs. Smith's Bakeries' frozen dessert business to The Schwan Food Co. for approximately $240 million in cash, according to a fund manager.

The sale, announced Jan. 30, is part of the company's effort to streamline its organizational structure to enhance financial performance. The transaction is expected to close during the first quarter.

"Proceeds from the sale will be used to pay leases and pay down the term loan," the fund manager said. "They have a GE Capital lease outstanding that's secured by these assets. If they can replace those assets with other assets than they don't have to pay off the lease. The size of the paydown [on the term loan] depends on that."

Approvals for the amendment are due by Feb. 21.

"I would imagine it would pass. I don't see who would say no to getting a big paydown," the fund manager added.

Flowers Foods is a Thomasville, Ga. producer and marketer of packaged bakery foods for retail and foodservice customers. Schwan Food is a Marshall, Minn. manufacturer and distributor of fine frozen foods through home delivery, retail grocery, and foodservice channels.

Lennar Corp.'s new pricing-refinancing deal is being followed by some leveraged loan players despite the company's recent upgrade to investment-grade status, according to a fund manager who participated in the conference call that was held Monday to launch the new deal.

Deutsche Bank is the lead bank on the new facility.

The company's existing term loan B, which had $391 million outstanding as of November 30, is currently priced with an interest rate of Libor plus 250 basis points. Through this refinancing the term loan B will be repriced with an interest rate of Libor plus 200 basis points, according to the fund manager.

When asked what attracted the fund manager to the deal, Prospect News was told that the company "is going to be one-time senior levered, it's probably the strongest home builder in the market and I don't think they've ever not met their budget. It's a proven leveraged loan."

Lennar is a Miami homebuilder and a provider of residential financial services.

The Premcor Refining Group Inc. completed the amendment and restatement of its senior secured credit facility, increasing the size to $750 million, extending the maturity date to February 2006 and allowing for the acquisition of certain assets of The Williams Companies.

The facility consists of a $600 million three-year revolver with an interest rate of Libor plus 300 basis points and a $150 million three-year pre-funded letter of credit facility with an interest rate of Libor plus 325 basis points.

Deutsche Bank was the lead bank on the Old Greenwich, Conn. petroleum company's loan that will continue to be used primarily to provide letters of credit in support of crude oil and feedstock purchases for refinery operations.

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