Gate Gourmet International's bank debt rose amid speculation that its U.K. operation could be heading for bankruptcy after it fired 670 employees. Its mezzanine debt was trading at 95, up from 75 two weeks ago. Its U.S. term "B" loan was up 1 1/5 points to 99 1/2. "It is trading relatively strongly," said one trader. "It has gone up higher than I thought it would."
Gate Gourmet's mezzanine lenders exercised an acceleration clause in their agreement several days before a labor strike at Heathrow airport. John Bronson, a spokesman for the company, said the lenders have not yet moved to enforce the acceleration clause. The company is negotiating a financial restructuring plan with lenders.
Gate Gourmet fired the staff after disagreements over a restructuring plan. British Airways baggage handlers at Heathrow went on strike in sympathy with the workers. The strike led to widespread disruption of British Airways flights.
Bronson said the U.K. operation has been losing money for years, mainly because of labor costs. "The company can't continue to lose money," said Bronson. "One of our options would be to put the U.K. subsidiary into administration."
Gate Gourmet could lose British Airways as a client because of the disruption. The airline is the company's largest client. "We are currently in discussions with BA to negotiate our commercial contract at Heathrow," said Bronson.