Quiet pre-holiday bank market gives investors time to assess new Gate Gourmet deal

By Sara Rosenberg

New York, Nov. 27 - It was quiet in the bank loan market on the pre-Thanksgiving day, giving some participants the opportunity to catch up on conference calls and credit work. One fund manager said that he spent the otherwise quiet day sorting through some information heard on Tuesday's calls by Gate Gourmet (regarding a new loan) and DeCrane Aircraft Holdings Inc. (lender update).

Gate Gourmet launched a new credit facility on Tuesday, consisting of a $150 million six-year term loan B with an interest rate of Libor plus 450 basis points, a $50 million five-year revolver with an interest rate of Libor plus 400 basis points and a 100 basis point commitment fee, a $73.3 million five-year euro-denominated term loan A with an interest rate of Libor plus 400 basis points and a CHF88 million ($58.6 million) term loan B with an interest rate of Libor plus 450 basis points.

Other terms of the financing include a Libor floor of 3% and a dollar selling price of 981/2.

"It's kind of interesting for them to be trying to bring a deal like that with air travel the way it is," the fund manager said. "Airlines are cutting flights, and if not flights, they're cutting meals.

"Sky Chefs (an airline catering company that already has a loan in the secondary bank loan market) is trading in the high 70's, low 80's. Why buy a new loan at 98½ when I could buy this other loan for 18 points cheaper?

"They're trying to make [Gate Gourmet] pretty juicy. When you look at the Sky Chefs loan trading at a pretty deep discount it's a little bit better.

"[Also] Sky Chefs is the number one player. Gate Gourmet is the number 2 player. I'd like to own the loan for the number one player," the fund manager continued.

However, one thing going against Sky Chefs and for Gate Gourmet is covenant requirements. "Sky Chefs doesn't really have any covenants because when the deal got done it was investment grade," the fund manager said, adding that the spread on the loan is Libor plus 150 basis points and it will not see a change due to the fact that the company can't violate covenants that don't exist - making amendments unnecessary. Gate Gourmet, on the other hand, has a better covenant package for investors.

Another roadblock to Gate Gourmet's deal is its exposure to United Airlines, a company that has been going through a major financial restructuring and facing financial obstacles, according to the fund manager. "About 35% of their revenues come from United," he explained.

"It's a small bank deal with a company that's got a lot of mezzanine and equity debt," a sell-side source previously told Prospect News. "Leverage is under two times senior and under three times total. There's a 3% Libor floor when usually it's only 2 to 2.5%. And it's selling at 981/2. That should tell you something about the deal."

Citibank and Credit Suisse First Boston are the lead banks on the deal that will be used to help fund the leveraged buyout of the airline catering company by Texas Pacific Group from Swissair Group.

Financing for the acquisition also includes $175 million of mezzanine debt and $235 million of equity.

DeCrane Aircraft held a lender call on Tuesday updating lenders on the progress of the company, according to the fund manager. "They're telling us where they stand for the year and where they expect to finish up."

The company also discussed the overall outlook for the industry.

However, according to the fund manager, one of the more interesting things said by the company during the call was a reference to the potential for asset sales in order to pay down debt. "Now, I'm trying to figure out what assets and how much they can get," the fund manager concluded.

DeCrane Aircraft is an El Segundo, Calif. supplier of general and commercial aviation products and services.

Tucson Electric Power Co. closed on its new $401 million credit facility, which replaces the company's existing $441 million facility that was set to expire in December. TD Securities and Credit Suisse First Boston are co-lead arrangers and joint bookrunners, Toronto Dominion is the administrative agent, Credit Suisse First Boston is the documentation agent and The Bank of New York and Union Bank of California are co-syndication agents.

The new loan consists of a $60 million 364-day revolver and two letter of credit facilities totaling $341 million, according to a filing with the Securities and Exchange Commission. The $135 million tranche A LOC facility expires in Jan. 2006 and the $206 million tranche B LOC facility expires in November 2006.

Interest on the loans depends on the company's ratings. For BB/Ba2 or lower, the spread is Libor plus 425 basis points with a commitment fee of 40 basis points. For BB+/Ba1 the spread is Libor plus 400 basis points with a commitment fee of 35 basis points. For BBB-/Baa3 the spread is Libor plus 375 basis points with a commitment fee of 30 basis points. And, for BBB/Baa2 or better the spread is Libor plus 350 basis points with a commitment fee of 25 basis points.

The revolver will be used for general corporate purposes.

Security for the new facilities is second mortgage bonds issued under the Tucson, Ariz. electric company's general second mortgage indenture.

Bain Capital completed its acquisition of a 60% controlling interest in Unisource Worldwide Inc. from Georgia-Pacific Corp. To help fund the acquisition of the paper distribution company, Bank of America and Salomon Smith Barney provided Bain Capital with senior bank financing.

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