Analysts say Fleming headed for bankruptcy
By Rachel Katz
Bloomberg News Service
LEWISVILEE, Texas — Fleming Cos., the largest U.S. grocery distributor and Hawai'i's largest grocery wholesaler, said it may not be able to pay suppliers or make interest payments after lenders declined to extend more cash.
Fleming, which this month lost a contract with retailer Kmart Corp., its biggest customer, delayed filing its annual report with the Securities and Exchange Commission and said the report may include a warning about its ability to stay in business unless other financing is found.
Fleming's shares and bonds tumbled in the past year because of concerns over disputes with suppliers and an SEC investigation into its accounting practices. An $18 million interest payment on corporate bonds due Tuesday probably won't be paid, and Fleming may file for bankruptcy protection, analysts said.
"It's pretty clear that bankruptcy is imminent," said Melinda Newman, a high-yield analyst at Payden & Rygel Investment Counsel, which sold its remaining Fleming bonds after the SEC formalized its inquiry last month. The firm has about $15 billion in high-yield bonds among $45 billion in assets under management. "It's not a good picture."
Fleming, based in Lewisville, Texas, asked the SEC for a 15-day extension to today's deadline for filing its annual report. A delay is necessary to account for "significant business changes," Fleming said in a statement. The company said it's likely some past results will be restated.
Fleming spokesman Shane Boyd declined to comment on negotiations with lenders. The company earlier this week said it hired Gleacher Partners LLC and Glass & Associates as advisers to help with the talks.
The company last year arranged to borrow $975 million from banks led by Deutsche Bank AG and J.P. Morgan Chase & Co., according to SEC filings. As of October 5, Fleming had borrowed $484 million of the amount of credit available. Deutsche Bank AG spokesman Ted Meyer declined to comment.
Shares of Fleming plunged 52 cents to 62 cents at 4 p.m. in New York Stock Exchange composite trading after falling as low as 50 cents. They've lost 97 percent of their value in the last year.
Fleming ousted Chief Executive Officer Mark Hansen earlier this month after the SEC formalized the inquiry into how it accounted for payments to suppliers and presented financial statements. Hansen, hired in 1998, was replaced by directors Peter Willmott and Archie Dykes while Fleming seeks a new CEO.
The investigation is looking at how the company presented earnings and sales results, Fleming has said. Some suppliers have alleged the company deducted fees from customer bills to bolster profit.
"When the trade creditors lose confidence, the business cannot operate," said Steven Michaels, who helps manage $1.7 billion for Financial Management Advisors, which sold most of its Fleming bonds due 2008 about two weeks ago.
Wholesalers can receive fees when they place goods with retailers or in advance, sometimes for promising sales of a given level. The practice becomes a problem when companies book money before actually receiving it, analysts said.
Fleming, which is cutting 1,800 jobs, or about 15 percent, of its workforce, had sales of $15.5 billion last year, excluding 110 grocery stores it wants to sell.
The company serves about 50,000 retail locations, including some Target Corp. supercenters, Circle K and Phillip 66 convenience stores, and more than 600 IGA supermarkets.
Kmart, which filed for bankruptcy last year, ended a 10-year exclusive contract with Fleming this month. The agreement, signed in 2001 and expected to be worth $4.5 billion in annual sales, was a key part of Hansen's strategy to find customers other than supermarkets, which were losing market share to discount retailers including Wal-Mart Stores Inc.
