Will Extra Time Taken to Secure Rescue Deal Save Thomas Cook?
The future of Britain’s oldest travel company Thomas Cook is to be decided on September 18. Back in the month of August, news came that the firm has planned sale of majority of its business and a stake in its airline business to Chinese conglomerate Fosun, which also owns Club Med.
Confirming the news, a Thomas Cook spokesman Fankhauser said, “After evaluating a broad range of options to reduce our debt and to put our finances on to a more sustainable footing, the board has decided to move forward with a plan to recapitalise the business, supported by a substantial injection of new money from our longstanding shareholder Fosun and our core lending banks.”
On Monday, Thomas Cook announced the postponement of meetings about the company’s proposed recapitalization and a vote on the proposals. Now two things are to take place on September 27 and September 30 respectively.
The firm’s future is considered hanging as the 178-year-old tour operator has been drowning under increased debt. Other factors that have heated things include Brexit uncertainty and intense competition.
The firm has put off a creditor’s vote over the issue of rescue funding injection worth £900m, which if left out could rise to £1.1bn in the coming week.
As per sources, in the last 12 months the company’s shares have witnessed a significant drop reaching 94 percent. Due to this the business has plunged to just £69m.
The Civil Aviation Authority (CAA) refrained from making direct comments over the issue. It said, “We are in regular contact with all large Atol holders and constantly monitor company performance. We do not comment on the financial situation of the individual businesses we regulate.”
The details of the rescue deal depend on the bondholders which include two hedge funds, Sona and a Xaia, which is a German investor.
The bondholders had purchased CDS on their loans. These act as insurance which can pay out once the bonds become worthless. In order to trigger their CDS payouts, the bondholders need that to happen. Hence, they are stressing the deal should be framed in a manner that ensures their security.
Thomas Cook will be under high risk if they are unable to get the deal restructured as the bondholders can derail it at any point.
In recent court filings, the company has already announced its liquidity issues saying that “The serious liquidity issues within the group have led to an urgent need to complete any restructuring within September.”
Having more time to think about the deal will help Thomas Cook come up with better ideas. As of now, it is clear that the deal needs support from lenders, who own 75 percent of company’s debt.
There is an urgent need for Thomas Cook to renew its Atol, administered by CAA, in order to plan out its capacity for the coming months. This scheme provides financial protection to people who have purchased package holidays and flights from a member tour operator in case they go under.
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