Gate Gourmet International’s $165 million “B” loan held steady even as the company failed to make payment under its Swiss franc SFr372 million ($314 million) senior secured facility and an interest payment under its SFr268 million ($227 million) secured mezzanine facility that were due Dec. 31. A trader said the market was anticipating the default as investors were aware of the deteriorating financials. Investors also believe the bank debt is covered and the debt is not trading. A spokeswoman was not able to provide comment by press time.
The “B” loan was quoted at 96-98 prior to the default. Now it is being quoted at 97-98. Last month the bank debt for Gate Gourmet dropped from above par to stressed territory after the company disclosed bad financial numbers as difficult conditions in the airline industry pressured the business (LMW, 12/20). The debt went as low as 94 1/2-95 1/2 as the market digested the company’s struggles. The mezzanine debt saw a market at 79-80 and the $50 million multicurrency revolver traded around 92-94, said traders. The bank debt backed Texas Pacific Group's $675 million acquisition of the airline food caterer two years ago. Credit Suisse First Boston and Citigroup lead the debt.
Gate Gourmet is now negotiating with its banks to restructure its debt. “Although Gate Gourmet's liquidity position at the end of December 2004 was sufficient to fund scheduled debt repayments and working capital requirements, the group chose to defer some of the payments due under its secured facilities partly in order to meet potential restructuring charges during the first quarter of 2005,” according to Standard & Poor’s. S&P has lowered the long-term debt ratings on the senior-secured credit facilities and junior-secured mezzanine loan facility to D from BB and B, respectively. S&P has also placed the ‘1’ bank loan recovery rating on Gate Gourmet on watch with negative implications. The ‘1’ rating indicates that S&P expects recovery of about 100% principal post default.
“As part of our discussions with the bank group, we put forward a series of requests that are intended to provide our business with additional flexibility regarding our credit facilities,” a Gate Gourmet spokeswoman said last month. She added the proposals do not indicate imminent financial distress and that the company has adequate liquidity to meet all of its business needs.
