Tropical Sportswear rises on asset sale to Perry Ellis; ATA flies a little lower

By Paul Deckelman

New York, Dec. 17 - Tropical Sportswear International Inc.'s 11% notes due 2008 jumped Friday in reaction to the news that the well-known designer clothing house Perry Ellis International Inc. will buy the company's assets. On the downside, ATA Holdings Corp. bonds - which had risen over the past few sessions on the prospect of a big asset sale, finally came down a bit and were seen trading at lower levels.

Tampa, Fla.-based Tropical Sportswear's 11% notes due 2008 were quoted by one trader as having pushed up to 40 bid from prior levels at 32, "and some people think they're worth 50," he added.

The Florida apparel company announced Thursday that it had filed for voluntary Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court for the Middle District of Florida, and had entered into an asset purchase agreement with Perry Ellis to be acquired under Section 363 of the Bankruptcy Code.

Perry Ellis would pay $85 million in cash to acquire substantially all of Tropical Sportswear's accounts receivable, inventory, intellectual property, certain real property and other specified assets, as well as the outstanding capital stock of Tropical's European subsidiary, Farah Manufacturing (U.K.) Ltd., and would assume certain operating liabilities of Tropical.

The asset purchase agreement is subject to the consent of Tropical's creditors and approval by the bankruptcy court. It could be superseded by higher or better offers from other potential buyers.

Tropical also said Thursday that it had secured a new $50 million debtor-in-possession credit facility with The CIT Group and Fleet Capital, the company's senior lenders, to finance its working capital needs and allow business operations to continue as normal during the sale process, including meeting obligations to employees, vendors and others. Tropical has also retained the turnaround specialist firm Alvarez & Marsal as financial advisors.

The sale of the company is expected to be completed during the 2005 first quarter.

ATA slips from recent gains

Meanwhile, the bonds of another bankrupt company which has agreed to a major asset sale, ATA Holdings, were seen to have retreated from the highs they had hit after the sale was announced.

A trader in distressed bonds, who had seen ATA's 13% notes due 2009 and 12 1/8% notes due 2010 rise as high as 50 bid Thursday from levels earlier in the week in the high 30s, before going out Thursday afternoon at 47 bid, 49 offered, said that those bonds had eased back to about 46 bid, 49 offered on Friday.

He agreed with the suggestion that the pullback might be a classic case of the market adage "buy on the rumor, sell on the news," since the bonds had firmed handsomely in the week since Southwest Airlines Co. emerged to make the winning bid for certain of the bankrupt Indianapolis-based air carrier's assets.

ATA, after intensive talks with its bank lenders, bondholders and other creditors, had decided late Wednesday that Dallas-based low-fare airline industry leader Southwest's $117 million package deal was superior to the earlier $89.3 million offer from rival low-fare carrier AirTran Airlines to buy 14 gates that ATA leased at Midway Airport in Chicago.

ATA, which declared Chapter 11 in late October, announced the agreement with AirTran in November. Southwest, the seventh largest U.S. airline behind the old-line legacy carriers like American Airlines and Delta, and the clear leader in the increasingly popular low-fare segment that has grabbed an ever-expanding share of the market from old-line carriers, moved in with what was originally billed as a $100 million offer for six gates at Midway, filing its bid on Dec. 10, the deadline for accepting bids.

Southwest's winning $117 million bid is structured to give ATA $40 million to pay for the six gates and a hanger at Midway. Southwest would then funnel another $40 million to ATA as a short-term loan to get it through the bankruptcy process, and would guarantee $7 million in loan payments to the city of Chicago, which owns Midway.

Once out of bankruptcy, Southwest would invest another $30 million in ATA in the form of convertible preferred notes it could exchange later for about 27.5% of ATA's stock. Southwest would replace certain senior ATA executives with its own people, who would then proceeds to try to wring productivity savings out of the financially challenged airline by cutting labor costs 15% to 20%.

The deal must still be formally approved by the ATA creditors, by Chicago airport officials and by judge Basil Lorch III of the U.S. Bankruptcy Court in Indianapolis. Lorch is expected to grant his approval of ATA's pick of Southwest's bid at a hearing Tuesday.

Also among the bankrupt air carriers, United Airlines' bonds were seen continuing to languish around 7½ to 8½ cents on the dollar Friday, although this was up from prior levels around 6½ cents that the insolvent Elk Grove Village, Ill.-based airline's bonds had previously traded at.

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