Winn-Dixie bonds stabilize after two-day plunge; Owens Corning bank debt better

By Paul Deckelman and Sara Rosenberg

New York, Feb. 14 - After two straight sessions of careening wildly downward like a runaway shopping cart being blown across a windy supermarket parking lot, Winn-Dixie Stores Inc.'s bonds finally came to a halt on Monday, stabilizing at lower levels.

In bank debt dealings, Owens Corning's paper was seen trading around somewhat actively in Monday's session, with market technicals pushing it higher after a slight sell off on Friday.

Winn Dixie's 8 7/8% notes due 2008 - which on Thursday had plunged to 74 bid from prior levels at 88 and then on Friday continued down to around the 66 bid level - were being quoted Monday as having stabilized somewhere in a 65-66 context, their downside momentum apparently spent.

"They sort of stabilized in the mid-to-upper 60s," said on trader in distressed bonds, while another pronounced them "essentially unchanged" on the session.

The troubled Jacksonville, Fla.-based supermarket operator's real estate lease-backed 7.803% notes due 2017 and 8.181% notes due 2024 were each seen unchanged at 69 bid and 67 bid, respectively.

Winn-Dixie on Thursday 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 is in the middle of a so far year-long turnaround effort that includes closing unproductive stores and trying to figure out the right formula to stand off the challenges to its traditional markets in the U.S. southeast coming from such newcomers as Wal-Mart Stores, which has bitten sharply into the venerable chain's once-safe markets.

Dissatisfaction with the pace of the turnaround caused the board to change chief executive officers two months ago, and its recently appointed new president/CEO, Peter Lynch, said on the conference call following the earnings release that "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."

Lynch said that Winn-Dixie would implement some new tactics in hopes of boosting its sales in the short term and predicted that sales - down 4.7% in the quarter - would be back on the rise by the fourth fiscal quarter, which ends in July. He said the tactics he was proposing were "not rocket science" and could be utilized without making major expenditures.

However, analysts and traders were skeptical - with some suggesting that the company might be in a real jam if its vendors decided that its situation was too precarious and started tightening up their payment terms. The company's chief financial officer, Bennet Nussbaum, admitted that there had indeed been "some discreet tightening by a reasonably limited number of vendors," although he said that there had been no such additional tightening of terms in the past few weeks, and nobody had the company on a cash-on-delivery basis - yet.

Owens Corning loans up

In bank debt trading, Owens Corning's loan paper was being quoted Monday at 106 bid, 107 offered, up about a point from Friday's closing levels of 105 bid, 106 offered and up about two points from Friday morning's levels of 104 bid, 105 offered, according to a trader.

Owens bank debt had been in the spotlight all last week, rallying by about 17 or 18 points between last Monday morning and last Wednesday evening on news that a bankruptcy court hearing had been held last Monday on the issue of substantive consolidation. Although that hearing was a week ago, there still has been no ruling released. The hearing is intended to settle once and for all whether the claims of bank debt holders - whose debt was issued by separate, special-purpose subsidiaries - will get priority ranking because of that structure, or whether they will be collapsed into one pool of assets, as the bondholders have demanded.

Last Thursday, the Toledo, Ohio-based building materials company's paper finally started to settle in a little, moving to 105 bid, 105.5 offered from highs of around 107 bid, 108 offered.

The bonds, which meanwhile had fallen down into the 63-64 area from prior levels as high as the upper 70s, partly - though not exclusively - on the substantive consolidation wrangling, appeared to have stabilized at those lower levels Monday.

A trader quoted the bonds in a 63-65 context, "pretty much unchanged" on the session, and saw bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries' bonds likewise hanging in around 66 bid, 68 offered. Armstrong, like Owens-Corning, was driven into bankruptcy by a flood of asbestos-related lawsuits.

A bond trader saw little else happening on the distressed scene, with RJ Tower Corp.'s 12 % notes due 2013 also in a 63-65 bid range.

And he saw little or no movement in the 13% notes due 2009 and 12 1/8% notes due 2010 of ATA Airlines, even though the bankrupt Indianapolis-based airline's nearly 1,000 pilots and flight engineers approved a new contract that temporarily imposes a 20% pay cut on them, saving the company $12 million over four months while it restructures. Those notes continued to languish around 38 bid, 40 offered.

Some 78% of those eligible to vote for the contract reluctantly approved the pay cuts. The amended contract also cuts company contributions to a flight crew retirement plan in half, and makes other work rule changes. The cuts are retroactive to Feb. 1.

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