Ralphs’ Bonds Depressed by Campeau Fears

Investors are still cool to the junk bonds of Ralphs Grocery Co., even as a growing chorus of analysts are expressing confidence in the supermarket chain.

Concerns were raised by the Chapter 11 bankruptcy court filing Jan. 15 by two of Ralphs’ sister companies in the troubled Campeau Corp. organization, Federated Department Stores and Allied Stores. Even though Ralphs was not included in the bankruptcy case and is considered in relatively good financial shape, the company’s bonds have fallen on worries that the chain will be dragged into the Campeau morass.

The bonds, which traded as high as $97 per $100 in face value in mid-January, have moved down into the mid-$70s during the past two weeks and posted a closing bid of $74.50 on Friday.

Worried investors have pointed to the possibility that Compton-based Ralphs will face big tax bills if the Internal Revenue Service demands payment from Campeau for $350 million in deferred taxes. Another concern stems from the deferred gains taxes of more than $200 million that could be triggered if either of the big investors with claims on Ralphs’ assets--Olympia & York Developments or Ohio real estate developer Edward J. DeBartolo Sr.--take over the chain.

Analysts and company officials, however, say there is no more than a remote chance that Ralphs will be hit by either of those problems.

Sheila O’Connell, an analyst with the Duff & Phelps investment firm in Chicago, said the Ralphs bonds have been hurt by the overall weakness in the junk bond market, too. She predicted that Ralphs bond prices would stay depressed until the junk bond market improves or the company can provide further assurances to investors.