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TPG's Gate Gourmet Struggles With Airline Pressure

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Gate Gourmet International's bank debt has dropped from well above par to stressed territory after the airline caterer owned by Texas Pacific Group revealed disappointing numbers at a bank meeting Dec. 10.

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Gate Gourmet International's bank debt has dropped from well above par to stressed territory after the airline caterer owned by Texas Pacific Group revealed disappointing numbers at a bank meeting Dec. 10. Before the meeting Gate Gourmet's $165 million "B" loan traded as high as 103 1/2. The "B" is now active at 96-96 1/2, said one buysider. The mezzanine debt, meanwhile, was offered in the low 80s after trading close to 101 prior to this slide.

"The company disclosed bad numbers," a trader said. "It was a little unexpected [and] happened pretty fast," a second dealer noted, adding that the deal has always been a par credit.

A Gate Gourmet spokeswoman based in Memphis responded, "We met with our bank group, as we do each year, in London last Friday to brief them on the status of Gate Gourmet and our plans for the coming year. 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. These proposals will ultimately improve our capital structure and are not uncommon in situations such as ours.

"Gate Gourmet is forced to adapt to the difficult times in the airline industry," the spokeswoman continued. "The business of airline catering is under enormous cost pressures which we have to take out. We have to move with the market. Airlines have been forced to make concessions in labor relations, so do we," she said. The spokeswoman said the proposals do not indicate imminent financial distress and that the company has adequate liquidity to meet all of its business needs. She said the proposals are part of an ongoing effort to restructure the company for the long term. "We are optimistic for 2005 as the airline industry has been picking up more business again," she concluded.

Gate Gourmet also has a $50 million multicurrency revolver, a $73.3 million "A" loan and a $58.6 million "C" tranche. The bank deal 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.

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