Fleming continues descent; American Media prices, firms in secondary; another big inflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 16 - Supermarket tabloid publisher American Media Operations Inc.'s sale of $150 million of new eight-year bonds inside of pre-deal market price talk was the big news in the high yield primary market Thursday, and as well in the secondary, where the new bonds firmed smartly after they were freed.

And generally news continued to emerge from the high-yield primary market at a moderate pace on Thursday.

In addition to the deal from Boca Raton, Fla. supermarket tabloid publisher American Media details emerged on TRW Automotive's long-anticipated $1.4 billion offering.

Also on Thursday Toronto-based Sun Media Corp. announced it would begin orbiting $200 million of 10-year notes among the accounts and Los Angeles single-family homebuilder KB Homes offered to house $250 million of high-yield investors' cash with a drive-by deal set to price Friday morning.

And late Thursday sources told Prospect News that accounts currently have lots of cash, as high-yield mutual funds were reported to have had another massive inflow of more than $900 million.

American Media priced $150 million of eight-year senior subordinated notes (B2/B-) at par Thursday to yield 8 7/8%, at the tight end of the 9% area price talk, via JP Morgan. The newspaper and magazine publisher, whose organs include National Enquirer, Star and Weekly World News, will use the proceeds will be used to fund the acquisition of Weider Publications.

Prospect News learned Thursday that the roadshow for TRW Automotive's $1.4 billion four-part Rule 144A offering (B+) is set to get underway Friday in London. The deal, via joint bookrunners JP Morgan, Credit Suisse First Boston, Lehman Brothers, Deutsche Bank Securities Inc. and Banc of America Securities, is comprised of $1 billion of 10-year-non-call-five senior notes in dollar and euro tranches and $400 million of 10-year-non-call-five senior subordinated notes, also in dollar and euro tranches, with the dollar/euro breakdowns remaining to be determined for both tranches.

Sources pointed out that TRW, which is set to price Feb. 6, is 2003's kickoff LBO deal, with proceeds going to help fund the $4.725 billion acquisition of the company by the Blackstone Group.

"It's a leveraged buyout, and it's a reasonably leveraged company," said one sell-side source Thursday.

"It will be a good test for the market to see how all of these different tranches shake out," the official added. "It will be interesting to see if they market it as a senior offering and just try to push through the sub notes. It's great to have this happening at the beginning of the year because we're going to find out what the spread differential is between senior and sub for a lot of companies. It's three-times levered through the seniors. That's low for a buyout, but it's going to be indicative for some industrial companies out there."

Also on Thursday Sun Media announced an offering of $200 million of 10-year-non-call-five senior notes. The Canadian media firm will showcase its deal for investors at bookrunner Salomon Smith Barney's High Yield Conference, Jan. 21 in Beaver Creek, Colo.

And KB Homes, of Los Angeles burst on the scene with $250 million of seven-year-non-call-four senior subordinated notes (Ba3/BB-) set to price Friday morning via UBS Warburg. Price talk on the off-the-shelf offering is 8% area.

And sources reported that following the previous week's $1.025 inflow high-yield mutual funds again took in a massive chunk of cash for the week ending Jan. 15: $927.769 million, excluding distributions, one source said.

"TRW and Premcor will take care of some of it, but there is certainly more cash out there than there is business in the primary market," one official observed as funds flows news circulated the market.

"Every banker is going out to whoever is on the sidelines and telling them 'If you were waiting for this January rush to end you probably don't need to do that.'

"There is probably enough cash out there in the primary market for the backlog to grow. We're close to $3 billion right now on the forward calendar, and there is probably enough cash out there to handle that."

When the new American Media 8 7/8% notes due 2011 crossed over to the secondary side of the market, they shot up to 102.75 bid/103.25 offered, from their par issue price.

"They broke OK," a trader said approvingly.

Apart from that, secondary could have otherwise used a bit of news to liven things up on the last full trading session of the week ahead of Friday's early close at 2 p.m. ET and Monday's market-shuttering Martin Luther King Day holiday.

Even a sighting of Bat Boy, the half-human, half-bat mutant whose bizarre exploits are regular Page One fare for steady readers of American Media's sensationalistic Weekly World News, would have been welcome.

But Bat Boy - as well as Elvis and Bigfoot - all proved to be no-shows, so people had to be content with a more prosaic tale - the continued slide in the bonds of Fleming Companies Inc., in the aftermath of the Dallas-based wholesale grocery distributor's earnings warning earlier in the week.

A market source quoted Fleming's 9 7/8% notes due 2012 as "off again' around 44.5 bid, down from 47 on Wednesday. At another desk, the 9 7/8% notes were pegged at 45, but this was called a drop of as much as seven points from prior levels, while Fleming's 9¼% notes due 2010 were actually seen having firmed two points from prior lows, to 71. Its 10 5/8% notes due 2007 ended at 54 bid, down nearly five points.

Fleming's bonds had slid 10 points on Tuesday and dropped another several points both Wednesday and Thursday after the wholesale foods distributor warned that its earnings and EBITDA for the fourth quarter would likely come in at levels well under those projected by analysts, said that the sale of its money-losing retail store operations was progressing slower than expected and projected that it would get less for those assets than initially thought.

Bonds of Fleming customer Kmart Corp. - in bankruptcy for almost a year - continued to hold the gains they notched earlier in the week, when the Troy, Mich.-based discount retailer announced that it was turning the Blue Light out in 326 additional stores (out of about 1,800) and would eliminate as many as 37,000 jobs in a bid to get its expenses down to manageable levels and emerge from Chapter 11 this spring.

Kmart's 9 3/8% notes due 2006 continued to hover around 19 bid.

"They moved up there the other day [Tuesday] and have stayed there ever since, " a distressed-debt-trader noted.

Elsewhere, Charter Communications Holdings LLC bonds - which had fallen on Wednesday in response to a Moody's Investors Service downgrade to Ca and a report (dismissed by the company) that the troubled St. Louis-based cable operator had hired Lazard Freres to advise it on a financial restructuring - "were still in the high 40s and lower 50s," the trader said.

Another trader saw Charter's benchmark 8 5/8% notes due 2009 as having firmed as high as 47 bid early in the day - but then having come off that peak level to end at 45 bid/46 offered, half a point below Wednesday's close.

The trader saw some weakness in the telecommunications network equipment producer such as Lucent Technologies Inc., whose 7¼% notes due 2006 finished at 68 bid/69 offered, while rival Nortel Networks Corp.'s 6 1/8% notes due 2006 ended at 76 bid/77 offered, both down a point or 1½ points on the session.

Elsewhere in the communications sphere, he saw "not much going on" in names such as the bankrupt WorldCom Inc., whose bonds have recently been all quoted around 26.5 bid; Nextel Communications Inc., whose benchmark 9 3/8% notes due 2009 had moved to the high 90s, and Level 3 Communications Inc.

Also not doing much among the more widely held issues was Trump Atlantic City Associates, whose 11¼% first mortgage notes due 2006 continued to hover around 80 bid.

Those high yield steel issues which are financially sound continued to hover above par Thursday, apparently unaffected by a World Trade Organization panel's decision to uphold a ruling that said a U.S. law that requires the government to distribute anti-dumping duties to companies violates global trade rules.

AK Steel's 7 7/8% notes due 2009 were unchanged at 102.25 bid; United States Steel's 10¾% notes due 2008 were at 101 and Oregon Steel Mills' Inc.'s 10% notes due 2009 at 102, both also unchanged.

Little change was also reported in the bonds of homebuilders D.R. Horton and KB Homes, both of which reported better quarterly earnings than Wall Street had been expecting. Horton's 9 3/8% notes due 2011 were unchanged at 102.75 bid, while KB's 9 5/8% notes due 2006 were likewise steady at 103.

"Those bonds had been gradually moving up, and this kind of news was already fixed in," a market observer said. "They've been hanging in pretty strong throughout all of this nonsense [that has affected other sectors] because people still need a place to live."

Delta Air Lines' 7.90% notes due 2009 were two points better, at 74 bid/76 offered, after the Atlanta-based air carrier reported a net loss of $363 million ($2.98 a share) in the fourth quarter.

The company called the kind of losses it saw in 2002 "unsustainable" and cautioned that a return to profitability in 2003 was unlikely.

But the latest quarter loss still represented an improvement from the $734 million of red ink ($5.98 per share) seen a year earlier, and the company proclaimed itself fundamentally sound.

Even better from the point of view of investors - excluding non-recurring items, the fourth quarter 2002 loss was $1.90 a share - considerably better than the $2.30 per share deficit Wall Street had been expecting.

Northwest Air's 8 7/8% notes due 2006 were a point better, at 73 bid/74 offered. But Continental Air's 8% notes due 2005 lost a point to land at 66 bid.

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