ATA bonds gain as asset sale to Southwest approved; Gate Gourmet bank paper hangs in

By Paul Deckelman and Sara Rosenberg

New York, Dec. 21 - Bonds of ATA Holdings Corp. firmed smartly on Tuesday, after a federal bankruptcy judge approved the sale of some of the troubled Indianapolis-based airline's assets to low-fare airline industry leader Southwest Airlines.

In bank loan trading, Gate Gourmet Inc.'s loan levels were seen holding steady - even though it became apparent on Tuesday that the Zurich, Switzerland-based airline catering company's request for deferral of a loan amortization payment and waiver of financial covenants was not and will not get approved.

ATA's bonds - which had jumped from the lower 30s all the way up to the upper 40s when Dallas-based Southwest emerged late last week as a rival bidder for some of its assets in addition to AirTran Airlines, and was then selected by ATA's management as its preferred bidder - continued to push up Tuesday, after U.S. bankruptcy judge Basil Lorch III approved the proposed $117 million sale of six ATA-leased gates at busy Midway Airport in Chicago to Southwest.

The bonds - ATA's 13% notes due 2009 and 12 1/8% notes due 2010 - had actually backed off their peak level of 47 in Monday's session. But following Lorch's ruling at a hearing in Indianapolis, they pushed back up to 49 bid, 51 offered from 46 bid, 48 offered at the close Monday, a trader said.

Another trader saw the bonds at 49.25 bid, 50.25 offered. The company's over-the-counter traded shares were up 11 cents (13.10%) to finish at 95 cents on volume of 704,000, nearly three times the norm.

As part of its deal with ATA, Southwest - already the largest carrier at Midway - will pay $40 million for the six Midway gates, and then invest additional monies in ATA, in which it will take a stake of approximately 27.5%. Press reports say that although ATA will continue to operate as an independent carrier, Southwest will most likely replace several senior ATA managers with its own people and proceed to begin cutting the restructuring airline's labor costs by 15% to 20%. Among the monies that Southwest will advance ATA is debtor-in-possession financing to tide ATA over while it gets its financial house in order. ATA declared Chapter 11 bankruptcy last week.

AMR higher, Delta unchanged

Among other airline names, AMR Corp.'s 9% notes due 2012 were seen having firmed to 78 bid, 80 offered from prior levels at 76 bid, 78 offered, in an apparent belated reaction after Fort Worth-based AMR'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.

Delta Air Lines Inc. bonds, on the other hand, were mostly unchanged, with the Atlanta-based carrier's 7.70% notes due 2005 holding steady in the 92 bid, 94 area, while its 8.30% notes due 2029 weree unchanged at 48.5 bid, 49.5 offered.

Gate Gourmet loans steady

In bank loan trading, Gate Gourmet's term loan B held in at 94.5 bid, 95.5 offered, a market source said - although the level on the offer side was merely a quote with no substantial offer to back it up.

The source noted that the company's loan amortization payment deferral and financial covenant waiver requests were not and will not get approved.

The company had wanted to defer loan amortization payments due Dec. 31 until April 1, 2005 and waive financial covenants for Dec. 31 due to liquidity concerns. The company had also asked mezzanine lenders to defer interest payments.

"No one signed the waiver. It's pretty much a dead deal," the source said. "Interest payments are due around year-end. There will [probably] be a default and then each involved party will pursue different courses of action."

Just what those options might entail is still unclear but the company may need to completely amend and restate its credit facility, get an equity infusion, or worst case scenario, be forced into Chapter 11, the source explained.

Salton bonds lower

Back in the bond pits, traders said that Salton Inc.'s bonds were "under pressure," one said, although he said there was no concrete news that he had seen about the company.

However, he added "people are speculating that retail sales this holiday season will be just - eh," indicating mediocrity - bad news for the Lake Forest, Ill.-based maker of the George Foreman line of home electric hamburger and hot dog grills.

He saw the Salton 10¾% notes due 2005 at 85.375 bid, 85.75 offered and its 12¼% notes at 74.25 bid, 76 offered, both about four points down on the day. Meantime, he said, "the stock was getting killed," with the NYSE-traded shares off 50 cents (9.43%), to end at $4.80.

Pathmark Stores Inc.'s 8¾% notes due 2012 were seen down about a point on the day, closing at 94.75 bid, 95.75 offered.

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