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Strategies & Market Trends : Sharck Soup -- Ignore unavailable to you. Want to Upgrade?

To: Jim Spitz who wrote (37536)	1/15/2002 8:16:20 AM
From: Jim Spitz	Read Replies (1) \| Respond to of 37746

Kmart shares fall on ratings cuts, financing concerns Bloomberg News Published Jan 15 2002 TROY, MICH. -- Kmart Corp. shares, which lost about a third of their value last week because of concern about the company's financing, plunged again after Moody's Investors Service and Standard & Poor's cut the chain's ratings. The stock fell 46 cents, or 14 percent, to $2.84. Kmart's 9.38 percent notes maturing in 2006 fell about 4 cents to 60 cents on the dollar Monday, traders said. That pushed the yield up to almost 26 percent from 24 percent. Kmart said last week that it is seeking additional funds after failing to turn a profit this fiscal year and setting back CEO Chuck Conaway's turnaround plans. The No. 2 U.S. discount chain has $1.5 billion in loans expiring in December and probably will have to secure its next round of loans with company assets, Moody's said. That means holders of unsecured bonds would have fewer assets to claim in the event of a bankruptcy filing. "Things were not as good as we might have hoped," said Gerald Hirschberg, an S&P director who heads up the ratings firm's retail group. "We also heard from their vendors, who were concerned about Kmart's liquidity. Whether those concerns are real or imagined isn't so important." S&P cut its junk ratings on Kmart by four levels to B-today. Moody's lowered its rating three notches to B2 on Friday after the close of regular trading. Moody's also said it's reviewing debt ratings of Fleming Companies, Kmart's main food supplier, for a possible reduction. Fleming shares fell 57 cents to $17. The distributor said Kmart is paying its bills on time. Under the companies' contract, Kmart must pay its invoices within seven days. Procter & Gamble Co., the biggest U.S. household-goods maker, also is getting paid on time and hasn't changed the terms of its supply agreements, said Tami Jones, a spokeswoman for the maker of Pampers diapers and Cover Girl cosmetics. Kmart is the company's biggest customer after Wal-Mart Stores Inc. Kmart spokesman Jack Ferry said the retailer is current in all of its contracts with suppliers. He declined to say how talks with lenders are progressing. The company will hold a regularly scheduled board meeting today, Ferry said. He said he didn't know what would be discussed. Kmart will report results on March 5 for the fourth quarter and year ending Jan. 30. Kmart, based in Troy, Mich., has about 250,000 employees and 2,100 stores. Analysts including Bruce Missett of Morgan Stanley and Emme Kozloff of Sanford C. Bernstein have said they expect the company to shut more than 200 stores. Prudential Securities analyst Wayne Hood has said Kmart may find it easiest to restructure under bankruptcy protection from creditors. "I wouldn't rule it out," said Midwest Research analyst Jeff Stinson, who rates Kmart a "neutral" and doesn't own the stock. "If in the next 90 days they can get a [loan] in place and expanded, bankruptcy isn't likely to be a near-term issue. If you can't get that done, [bankruptcy] becomes a bigger question mark." Kmart has failed to lift same-store sales in four months. The company cut advertising too steeply at the start of the holiday season, reducing the number of shoppers that visited its stores, and its price-cutting plan backfired when Wal-Mart responded with even deeper discounts that Kmart couldn't match, analysts said. Conaway, a former CVS Corp. drugstore executive who was hired by Kmart in May 2000, has been trying to rebuild the retailer's outdated distribution network and improve the chain's image by improving customer service and keeping popular goods in stock. He also has been expanding the Martha Stewart Everyday home goods brand, a label exclusive to Kmart in the United States. "If you look at the magnitude of the changes they were trying to accomplish, it got tough to keep near-term results afloat," Stinson said. Kmart's December same-store sales fell 1 percent from a year earlier. Wal-Mart reported an 8 percent gain, while Target Corp., the third-largest U.S. discount chain, had a 1.8 percent increase at its namesake stores. Moody's on Friday said the outlook for Kmart remains negative. S&P said the retailer's ratings are under review for further reduction. © Copyright 2002 Star Tribune. All rights reserved.