Thomas Cook risks collapse as stock dives but there may still be wind beneath its wings

Thomas Cook Airlines aircraft tail

Thomas Cook travel company, has come a long way since its formation in England’s rural Leicestershire during the early Victorian era.

The iconic brand started some 178 years ago as a fledgling company and became a huge global travel group, with annual sales of £9bn, 19 million customers a year and 22,000 staff operating in 16 countries.

Thomas Cook may face insolvency

Today Thomas Cook is looking down the barrel of insolvency and shareholders are bracing themselves for a dive in share value as uncertainty over summer travel bookings increases.

Shares fell almost 40 per cent on Friday after Citigroup said it was at risk of a “vicious” cycle. 

It seems the company has asked lenders for a further £100 million in addition to the £900 million already on the table. If this doesn’t happen, the company will have to go into liquidation.

Even so, there is hope for the company. A City source said Thomas Cook thought it unlikely it would need to draw on the additional £100 million, but the extra funding is needed to reassure investors.

Yet there are still fears that the company is running out of time. The company’s board has continued to look for ways to restructure in advance of a stakeholder vote due next week.

Thomas Cook rescue plan

There is a rescue plan in the offing courtesy of Thomas Cook’s Chinese investor Fosun, the Chinese conglomerate that owns almost a fifth of Thomas Cook’s shares. They want to inject £450m of new money into the company in return for 75 per cent of its tour operating business and 25 per cent  of the airline – that’s the limit EU ownership rules allows.

A further £450 million in aggregate is to be provided by lending banks and bondholders. The £1.7 billion in existing debt will be written off in exchange for the remaining stakes in the two divisions.

It sounds good but there may be trouble ahead according to Bloomberg who say that as hedge funds who hold credit insurance (this pays out in the event of a default) are worried that the proposed debt-for-equity swap element of the restructuring would leave their holdings with no debt to insure, leaving them out of pocket as they would not receive a pay-out..

It is possible, they say, that Sona Asset Management and XAIA Investment might vote against the rescue deal at next week’s creditor meeting.

Thomas Cook look to renew its Atol

If Thomas Cook can convince the CAA (Civil Aviation Authority) that is indeed solvent they will then be allowed to renew its ATOL (Air Travel Organiser’s License) by the authority’s September 30 deadline.

 


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