Fleming bonds higher on completed asset sale; HealthSouth continues slide

By Carlise Newman

Chicago, Aug. 25 - Fleming Cos. bonds were higher Tuesday in a particularly subdued distressed debt trading session. Fleming said Monday that the sale of the company's grocery wholesale assets was completed as expected at midnight on Aug. 23.

The Garland Division was acquired by Grocers Supply. The Miami Division was acquired by Associated Grocers of Florida. Associated Wholesale Grocers of Kansas City acquired the Nashville, Memphis, Memphis GMD, Tulsa, Lincoln and Topeka Divisions. C&S acquired the Hawaii, Fresno, Sacramento, Sacramento GMD, LaCrosse, LaCrosse GMD, Massillon and Milwaukee Divisions.

Fleming's 9¼% notes due 2010 were 2 points higher Tuesday at 12½ bid, 13½ offered, a trader said.

"They were firming up Monday and today," he said.

The company also said that Peter Willmott has completed his tenure as Fleming's interim chief executive officer and president and will be succeeded by Archie Dykes.

Meanwhile HealthSouth Corp. bonds were weakening, but "not at the same rate as Monday," a trader said.

The benchmark 7 5/8% notes due 2012 were trading 1 point lower at 80 bid, 82 offered.

The bonds have been slipping after reports Friday said that federal prosecutors in Alabama are looking into possible links between a corruption probe in the state government and the accounting scandal at HealthSouth.

Investigators have been looking at possible bribery involving a high-level state official since 2001, the report said. Two Alabama businessmen and a top aide to former state governor Don Siegelman have pleaded guilty to fraud in relation to bribes paid to one of the businessmen, the newspaper reported.

Birmingham-based HealthSouth faces federal charges of inflating its reported earnings by $2.5 billion in recent years. Much of the inquiry has focused on Richard Scrushy, HealthSouth's founder and former chief executive.

Prosecutors are now swapping information on the two probes, reports said.

"We were busy, but overall the day was very quiet," a trader said of Tuesday's action. "We saw the same issues we've been seeing for days, the HealthSouths, the Worldcoms."

WorldCom Inc. bonds were unchanged at 28¼ bid, 28¾ offered, after a week-long rally stemming from good news for the company's balance sheet.

The Ashburn, Va.-based long distance company last week said it stands by its July 7 financial forecasts, which called for 2003 revenues of $24.5 billion. It said its revenues would be $24.6 billion in 2004 and $25 billion in 2005. WorldCom rallied for most of the week following the report.

Elsewhere, UAL Corp. debt appeared to be following the footsteps of WorldCom. The bonds were firmer after the company said Monday it posted a profit from operations in July of $35 million, but a loss of $7 million when excluding benefits from its Chapter 11 bankruptcy proceeding.

UAL's 9¾% notes due 2021 rose 3 points to 11 bid, 12¼ offered, a trader said, a rise of 1¼ point.

"They're hanging in there. I wouldn't be surprised to see them in the teens this week," he said.

The bankrupt parent of United Air Lines said it continued to generate positive cash flow in the month and also met its special bankruptcy financing covenants for the sixth month in a row.

The carrier said its system-wide unit revenue improved 10% year-over-year as it continued to focus on reducing costs. The industry's system-wide unit revenue rose 8.1% in July from a year earlier, according to the Air Transport Association, an industry trade group.

United said it ended July with a cash balance of $2.3 billion, including $714 million in restricted cash.

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