Fleming falls as shares pared on lawsuit fears; Swift moves quickly on revised deal

By Paul Deckelman and Paul A. Harris

New York, Sept. 4 - Fleming Cos. bonds were lower Wednesday as the wholesale groceries supplier's shares slid in response to investor lawsuits alleging misleading management tactics. On the upside, homebuilders strengthened after Hovnanian Enterprises reported considerably better-than-expected fiscal third-quarter results and raised its guidance for the full year well above analysts' projections.

In the primary market, meatpacker Swift & Co. is looking to bring home the bacon with a downsized deal that goes on the road Friday.

Fleming Cos. was "the dog of the day," a trader said, as its bonds retreated in the face of its swooning stock, while another market source agreed that "they were down big."

Fleming's 10 1/8% notes due 2008 were quoted as having declined to 93.5 bid/94.5 offered from Tuesday's levels at 96 bid/97 offered. "There were certainly some rumblings on its news," the trader said.

Another trader said that he had seen all of Fleming's paper offered with no bids, pegging the 10 1/8s at 95.5, the 9 7/8% notes due 2012 at 76.125 and 10 5/8% notes due 2007 at 84. At another desk, a trader - who also saw all of the Fleming paper only offered with no bids - said those 10 1/8% notes had traded around 97 bid/99 offered at the end of last week, while the 9 7/8% notes had been at 80 bid and the 10 5/8% notes had been at 88.

Fleming debt headed south in tandem with the Dallas-based wholesale grocer's shares, which lost $1.31 (14.07%) in Wednesday's New York Stock Exchange trading, to close at $8. Volume of 6.4 million shares was over six times the usual turnover.

Fleming shares have been falling since Friday, when disgruntled shareholders filed a class action lawsuit against the company and its management, accusing them of having issued artificially rosy assessments about the performance of Fleming's retail supermarket division despite having allegedly known "that the (stores' performance) ... was disappointing." That, in turn, caused an artificial boost in Fleming's share price, although that has since come down to well under its 52-week peak level of $30.45, seen about a year ago; as recently as early May, Fleming shares were still hovering around $25, but have been on the slide ever since then.

For its part, Fleming called the lawsuit, filed in the courts in its home base of Texas, "baseless and completely without merit," and it vowed to "vigorously defend the action."

Also on the downside, Nextel Communications Inc. bonds, - which had weakened markedly on Tuesday - were again easier on Wednesday, although they were only about a half a point softer; Nextel's benchmark 9 3/8% notes due 2009 inched down to 74 bid/74.5 offered.

A trader called them "pretty active - but in that half-point range." Nextel's bonds had softened on Tuesday in tandem with its shares, which fell on a Wall Street Journal report that its second-biggest stockholder, Craig O. McCaw, hedged some of his Nextel stock to limit downside risk; some in the market interpreted that to mean that the billionaire telecommunications pioneer might not be fully confident of the wireless company's prospects, although others take issue with that assessment. Nextel stock again eased on Wednesday, although only by 16 cents (2.21%) to $7.08.

Elsewhere in the communications sphere, the news was all positive; Qwest Communications debt firmed on market reports - later confirmed in a company announcement - that the problematic Denver-based regional Bell operating company had reached an agreement with its banks on amending its $3.39 billion credit facility, thus avoiding the prospect of a messy default or even a possible bankruptcy. Qwest also said that it had completed a new $750 million term loan at its QwestDex Inc. yellow pages unit, which is being sold in a two-part transaction for $7.05 billion to buyout firms Carlyle Group Inc. and Welsh, Carson, Anderson and Stowe.

That pushed Qwest shares up 34 cents (10.43%) to $3.60 on NYSE volume of 25 million shares, slightly higher than the usual 19-million share turnover. A trader meantime quoted Qwest's benchmark 7¼% holding company notes due 2011 as having firmed to 56.5 bid/57.5 offered from prior levels around 53.5 bid/55.5 offered. Qwest's 7¾% holding company paper due 2006 firmed two points on the session to 61.5 bid/63.5 offered. Another trader said that Qwest's operating company bonds, meanwhile, had "really not done much," since there was little fear that those bonds - one level closer to the company's assets than the holding company debt - would default.

Charter Communications Inc. bonds firmed after the company said in a presentation to investors and analysts that it planned to cut some of its $17.6 billion of debt. CEO Carl Vogel declared that "It would be prudent, and I think the market is telling us in the very near term, 'you guys ought to think about reducing debt.' So we're thinking about reducing debt."

Charter's 8 5/8% notes due 2009 were being quoted about a point higher, at 67.5 bid/68.5 offered. Charter has recently benefited from an overall strengthening of cable-industry bonds on investor belief that consolidation is coming. A trader said that even the battered bonds of bankrupt Adelphia Communications Corp. were helped; he said that ever since an announcement last week that RCN Corp. was going to be selling some of its cable assets, the Adelphia paper "has been moving up a point, a point and a half every day" - a total of about 10 points in that time. He said that Adelphia "continued to inch up" Wednesday, with its 10¼% notes due 2011 having risen to 37 bid/38 offered.

Homebuilder Hovnanian reported net income for the fiscal third quarter ended July 31 of $39.2 million ($1.20 per share) - well up from $21 million (71 cents per share) a year ago and better as well than analysts' estimates of earnings around 80 to 90 cents a share. Revenues came in at $704.6 million versus the anticipated $589.7 million. Hovnanian raised its full-year per-share earnings outlook to a range of $4 to $4.10, well above the $3.30-to $3.40 Wall Street has forecast.

Its shares were up $3.78 (12.63%) to $33.72. Hovnanian's bonds were higher as well on the unexpectedly strong showing, its 9 1/8% notes due 2009 having firmed two points on the session to 99 bid/par offered. A trader quoted its 8 7/8% notes better bid at 92.

Other homebuilders getting a boost included Ryland Group, whose 9¾% notes due 2010 were a point better at 106 bid; and Lennar Corp., whose 9.95% notes due 2010 were likewise up a point, at 107 bid. D.R. Horton's 8% notes due 2009 were a point improved, at 99.5.

The high-yield primary market produced news of a building forward calendar on Wednesday. However the names bore an unmistakable familiarity.

In the wake of its historic beef recall (the second largest ever, reportedly) ConAgra Foods, Inc. expressed a willingness to digest a hefty piece of Swift & Co.'s restructured deal which, according to a syndicate source, is now ready for re-marketing.

And Düsseldorf pharmaceutical packager Gerresheimer Glass (Gerresheimer Holdings GMBH & Co. KG), which resealed its eurobond deal against the toxic atmosphere of the July high-yield market, is cautiously sniffing the September air, perhaps preparing to pull off the stopper one more time.

"I think it will be interesting to keep track of the deals that were postponed in July when things were terrible and see how many of them come back," one source from an investment bank told Prospect News, Wednesday.

"So far it looks like a pretty steady stream that's beginning to build. We've had two days in a row where deals are getting announced."

News of Wednesday's most purposeful return came from Swift & Co.

It was bad beef rather than a bad market that caused the Greeley, Colo.-meat producer to pull its $400 million of seven-year senior notes off the road on July 22, market sources told Prospect News: ConAgra's July 19 recall of 18.6 million pounds of E. coli-tainted ground beef, comprising the second-biggest beef recall in US history, according to reports.

In the wake of the delay, sources said that investors were being re-mustered to re-inspect the LBO deal that was being brought to help finance Hicks, Muse, Tate & Furst and Booth Creek Management's acquisition of 54% of ConAgra's U.S. and Australian beef, pork and lamb operations.

On Wednesday a syndicate source confirmed that Swift had returned, albeit in slightly altered form.

The new deal brings $250 million of seven-year non-call-four senior notes (expected ratings B1/B+) via Salomon Smith Barney and JP Morgan (the same syndicate as before the delay).

The new structure also includes $150 million of 7.25-year non-call-four senior subordinated notes that will be completely taken down by ConAgra, with a six-month lock-up provision.

An abbreviated roadshow begins Friday, a syndicate source said, with pricing expected on Sept. 13.

More tentative was word Wednesday from a syndicate source that Gerresheimer Glass is calculating a return to the eurobond market, likely with a deal identical to the one it pulled on July 26 because of market conditions.

Gerresheimer's €150 million of nine-year senior subordinated notes (B3/B) via JP Morgan and Goldman Sachs & Co. could conceivably reappear before the end of the week of Sept. 2, according to a market source.

The source added that the Düsseldorf, Germany-based pharmaceutical packaging manufacturer may want European investors to have a crack at its deal prior to the fanfare that sources say is bound to attend Jefferson Smurfit's mammoth €900 million equivalent of 10-year senior notes in dollar, sterling and euro tranches.

That deal, via Deutsche Bank Securities and Merrill Lynch, to fund the acquisition of the company by Madison Dearborn Partners, is set to start roadshowing in the States on Monday, with the European roadshow scheduled to commence exactly one week later.

"When Gerresheimer pulled their deal from the market because of market conditions it was set to come back in September or early fall if the market had improved," a syndicate source said.

"The company doesn't necessarily have to do the deal now," the source added. "It's not life or death but they would like to get the deal done as long as it's at the right price."

Prospect News asked this same sell-sider to suggest the source of the record-breaking $1,556.2 million inflow to the high yield mutual funds for the week ending Aug. 28 - the most recent funds flow reported by AMG Data Services.

On Tuesday Merrill Lynch chief high yield strategist Martin Fridson told Prospect News that the inflow "was largely a function of market-timers who are likely to go back out in another few weeks as their technical indicators change."

This sell-sider allowed that reallocation among the asset classes could quite likely have come into play but also suggested an alternative explanation.

"I've heard that some funds only report on a monthly basis now," the source said, adding that some funds may have been receiving sizable inflows during the first three weeks of August - inflows that ultimately went unreported until Aug. 28.

Asked which way the funds flow are anticipated to go in the weeks to come, at this sell-sider's institution, the source said: "It's anyone's guess.

"I'd be more inclined to think it will continue to come in but not to the tune that it came it last week."

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