Gate Gourmet seeks amortization payment deferral, financial covenant waiver

By Sara Rosenberg

New York, Dec. 14 - Gate Gourmet Inc. is seeking lender approval to defer loan amortization payments due Dec. 31 until April 1, 2005 and to waive financial covenants for Dec. 31 due to liquidity concerns - a request that has lenders worried about the future of the company, according to a market source.

Furthermore, the company is also asking mezzanine lenders to defer interest payments.

Citigroup is the agent on the credit facility, and Credit Suisse First Boston is the agent on the mezzanine debt.

"Liquidity is tight. They're looking at next year and trying to conserve cash and come up with a new plan. I don't think it's a good thing at all. Potential Chapter 11 filing here," the source said.

"Lenders seemed very caught off guard. Everything seemed to be going alright in September and then October numbers came out and they seemed really off.

"They should have warned [lenders] in June or July, not the second week of December.

"They probably knew ahead of time and they probably were sitting on the information," the source speculated.

"They hired a new CEO in June - David Siegel [formerly president and chief executive of US Airways Group Inc.]. His background is a restructuring sort of background. That should have been the first sign but everyone assumed he was hired because of his airline background," the source continued.

And, "even if this gets approved," the source said about the proposal, "it only buys them time till April 1 and then the question is whether they'll be able to make the payments."

The company held the lender call on Friday to launch this payment deferral and financial covenant waiver request. Consents are due from lenders on Dec. 20.

No fees are being offered to lenders in exchange for their approval, which is another "bone of contention," the source added.

Immediately following the call on Friday, the company's term loan B fell to 95½ bid from the 102 context. However, since then, levels have picked up a bit with the loan trading in the 96 bid, 97 offered context on Monday and the 97 context on Tuesday as the initial shock has warn off and lenders have had some time to digest the information.

A call to the company was not returned prior to press time.

Gate Gourmet is a Zurich, Switzerland-based airline catering company.

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