FLEMING HOPES TO BECOME A NEW COMPANY IN NEW YEAR

MARK HAMSTRA

DALLAS -- Creditors of Fleming Cos. here are hoping that convenience-store distribution emerges as a hot growth area.

The former supermarket wholesaler, which filed for Chapter 11 bankruptcy protection in April, has filed a reorganization plan that calls for the company to rebuild around its Core-Mark International convenience-store supply division, unless it succeeds in selling the division first. Creditors would receive equity in the reorganized company, dubbed Core-Mark Newco.

Observers said they believed that Fleming would likely end up retaining Core-Mark and reorganizing around it, although they stressed that very few details about the plan have been released.

"I think there are a lot of things that are still up in the air right now," said Stephen Miller, an attorney with Morris, James, Hitchens & Williams, Wilmington, Del., which is representing several creditors in the case. Details about a new financing package have yet to be disclosed, for example, he said. "There are a lot of things that need to be played out to determine whether you can get a good recovery or not."

One analyst, who asked not be identified, said senior bondholders can expect to get a return in the range of 15 to 25 cents on the dollar.

"If all the stars line up, it could be in the upper 20s, but if everything goes wrong, it could be in the mid-teens," the analyst said.

Although Fleming said it was still seeking bids for Core-Mark, it appeared likely that the company would not execute a sale, the analyst said. Some sources indicated to SN that preliminary bids to acquire the Core-Mark business, which were due by mid-December, were inadequate. Core-Mark could not be reached for comment.

Many of the creditors would probably not be interested in retaining equity in the new company for the long term, sources told SN.

"I don't know what the growth potential is for the convenience-store industry, but if people feel that there is growth, they may be more willing to hold onto it," said the analyst who requested anonymity.

Options for the reorganized company include trying to build up the business before seeking a sale either to a private investor as an equity play or to a rival as a strategic acquisition.

Core-Mark was the second-largest convenience-store distributor in the country, with annual sales of about $3.4 billion, when Fleming acquired it in 2002 as part of an effort to diversify its customer base. It supplies convenience items to a wide range of retailers in 38 states, including supermarket operators Albertsons and Safeway.

Core-Mark said it has maintained a high level of service to its customers despite the bankruptcy of its parent company. In October, the company said its overall fill rate "exceeded 98%," adding that it had "positive cash flow" since Fleming's April 1 bankruptcy filing.

The U.S. Bankruptcy Court in Wilmington, Del., will consider Fleming's proposed plan of reorganization and disclosure statement at a hearing scheduled for Jan. 21.

Under the proposed reorganization plan, holders of common stock would not receive a distribution. The plan provides for cash distributions to certain creditors, including holders of secured claims.

"This plan of reorganization, which has the support of the creditors' committee, is designed to preserve our flexibility in an effort to maximize creditor recoveries, as well as to provide opportunities for our customers and employees," Archie Dykes, chairman, said.

Just because the creditor's committee supports the plan doesn't necessarily mean it will get approved, observers said.

"There are different constituencies, and depending how things come out, they may take a very different view about whether or not they would vote for the plan, and whether or not people will be willing to contribute some cash to make this thing work," said Miller, the creditor's attorney.

The analyst agreed: "The plan is so vague, they seem to have made everybody happy. When they narrow down the details, that may make things a little more complex."