Tropical Sportswear bonds up again; Mirant bank debt firmer

By Paul Deckelman and Sara Rosenberg

New York, Dec. 20 - Tropical Sportswear International Inc.'s bonds were seen up for a second consecutive session Monday in the wake of the announcement late last week that the Tampa, Fla.-based apparel company's assets are to be bought by Perry Ellis International Inc. - a prospect which has Tropical's shareholders meanwhile heading for the exits.

In bank debt dealings, Mirant Corp.'s paper was seen up modestly, with traders saying the loan market is correcting itself since having pushed the Atlanta-based power generator's paper down too far in response to the still-muddled situation between Mirant and Washington utility operator Pepco Holdings Inc.

A trader in distressed bonds quoted Tropical Sportswear's 11% notes due 2008 as having pushed up to 45 bid, 50 offered on Monday - this after the bonds had jumped to around 40 bid on Friday from their prior levels in the lower 30s following the news that the financially struggling clothing company had filed for Chapter 11 and had agreed to the sale of essentially all of its assets to Perry Ellis for $85 million in cash.

For that price, Perry Ellis - a well-known designer clothing house - is 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.

Tropical owns a range of casual and dress brands, including The Original Khaki Co., Banana Joe and Authentic Chino Casuals.

While the debtholders seemed enthused by the news on both Friday and Monday, seeing in it a likely chance to boost their anticipated recovery levels, the company's shareholders, well down the food chain from the creditors, were anything but. The company's Nasdaq-traded shares, already in penny-stock territory, nosedived 62.5% in Friday's dealings, and fell another seven cents a share (19.44%) to 29 cents on Monday, on turnover of about 3.1 million shares, about 15 times the usual activity level.

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 It could be superseded by higher or better offers from other potential buyers, should they emerge.

Tropical also said last week 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.

Mirant loans higher

Mirant's 2003 bank debt paper was being quoted Monday up by half to a quarter of a point, with levels of 68.5 bid, 69.25 offered, according to a trader, who said that the loan is still correcting itself after being pushed down a bit too far on the whole Pepco situation.

"It's now coming back to more accurate levels, the trader added.

Last week, the Pepco contract matter received a lot of attention, as a judge for the U.S. District Court for the Northern District of Texas ruled that Mirant must pay Pepco - but the judge also referred his decision to the U.S. Bankruptcy Court, which gave Mirant the opportunity to say that no payments would be made until the bankruptcy judge ruled on the matter.

This tactic ended up playing out in Mirant's favor, as bankruptcy judge Michael Lynn ruled on Wednesday that Mirant does not yet have to pay Pepco as part of an asset sale agreement.

The payments Pepco is demanding are part of the back-to-back agreement in the asset purchase and sale agreement under which Mirant bought Pepco's generating assets in December 2000.

On Wednesday, Lynn also extended the Atlanta-based power company's exclusivity period for filing a reorganization plan to Jan. 31, 2005. The company's current period of exclusivity had been set to expire Dec. 31.

Gate Gourmet loans down

Elsewhere in bank loan dealings, Gate Gourmet Inc.'s bank debt continued to weaken in Monday's market moving to 94 bid, 96 offered from 94.5 bid on Friday as the consent deadline for the deferral of loan amortization payments and the waiver of some financial covenants came and went with little expectation of the proposal passing just yet, according to a fund manager.

However, not all agree with the latest levels, as one trader remarked that there is a stronger bid than 94 out in the market.

On Dec. 10, Gate Gourmet held a lender call, asking to defer loan amortization payments due Dec. 31 till April 1, 2005 and to waive financial covenants for Dec. 31 due to liquidity concerns. The company also asked mezzanine lenders to defer interest payments.

These amendment requests have some investors worried that there may be a Chapter 11 filing in the company's future or that come April there will still not be enough liquidity to make required debt payments.

"I don't think there's enough clarity going on so no one is going to sign it as it is," the fund manager said. "They scheduled a lender call for tomorrow. I don't know what it's about but I'm sure they knew that they weren't going to get all consents today. They probably always expected that they would have to do this. They haven't officially pushed out the consent deadline but I'm not signing today."

After the initial lender call was held, the company's term loan B fell to 95.5 bid from the 102 context. Then, at the start of last week, levels 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 had warn off and lenders had some time to digest the information. However, by mid-last week the term loan started to drop off again, moving to the 96.5 context on Wednesday until finally reaching 94.5 bid on Friday and dropping even further in the most recent session.

"There's a lot of selling pressure. I think more people are saying, hey I need to get out of this," the fund manager explained.

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

Distressed bonds little moved

Back among the bond investors, a trader said he didn't see much going on in the distressed precincts, as the high-yield market begins winding down before the Christmas-New Years holidays.

"Adelphia [Communications Corp.] did nothing. Delta [Air Lines Inc.] did nothing." He saw ATA Holdings Corp. - whose bonds had rocketed skyward last week as low-cost airline leader Southwest Airlines came in with a better bid for certain ATA assets than the original deal between the bankrupt Indianapolis-based carrier and AirTran Airlines - staying in the same 47-49 context in which those bonds - the 13% notes due 2009 and the 12 1/8% notes due 2010 - had ended on Friday.

He also saw AMR Corp.'s 9% notes due 2012 staying in the mid-70s, even as the Fort Worth-based company's main operating subsidiary, American Airlines, announced Friday that it had closed on a new six-year $850 million credit facility. That financing replaces the airline giant's old $834 million revolving credit facility, which was due to mature next year.

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