By Matt Scuffham
LONDON (Reuters) – Thomas Cook (TCG.L) asked lenders to come to its rescue for the second time in five weeks, sending shares in one of the world’s oldest travel operators into freefall as it warned of a possible default.
Analysts said the move threw into question the future of the 170-year-old firm, which provides holidays for 19 million customers each year and employs 30,000 staff.
The company has been hit hard by tough trading conditions, especially in Britain, where its core customer base of families with young children has been particularly affected by tough economic conditions.
It was also hit by unrest in popular destinations such as Egypt, Tunisia and Morocco.
Evolution’s James Hollins said it was shocking that Thomas Cook needed to renegotiate its financing just 32 days after a previous deal with its lending banks.
“Legitimate questions will be asked as to whether Thomas Cook can survive long-term and whether there is any value left in its equity,” Hollins said.
Shares in Europe’s second-biggest travel firm by holidays sold, were down 75 percent at 10.4 pence by 1605 GMT, taking total losses since the start of the year to 95 percent and leaving the group worth around 100 million pounds.
In debt markets, Thomas Cook’s 300 million pound and 400 million euro bonds were trading at less than half of face value while its 150 million and 850 million pound credit facilities were being quoted at 60-65 percent of face value and looked set to drop further, according to traders.
Espirito Santo Investment Bank advised against holding Thomas Cook equity at any price.
“While the banks may yet again allow the group flexibility, realistically, we would expect Thomas Cook will be completely straight-jacketed by the banks,” said Espirito Santo analyst Geetanjani Sharma.
Sharma also said Thomas Cook’s suppliers and Britain’s Civil Aviation Authority could take a closer look at the viability of allowing bookings from Thomas Cook, which had issued a string of profit warnings this year.
“With more questions than answers on the operational viability of Thomas Cook over the coming months when there are few indications of any improvement in the macro condition, we consider this stock inappropriate for equity holders.”
Numis’s Wyn Ellis said the warning sent out a “terrible message” to customers who would likely be put off booking with the company.
“Competitors are likely to take advantage of the opportunity to grab market share leading to a potentially dangerous further downward trend in bookings,” he said.
Thomas Cook, whose chief executive quit in August, said trading had continued to decline in recent weeks with the crisis in the euro zone exacerbating an already weak holiday market.
“That deterioration relates mainly to the worsening economic situation in Europe, the euro zone problems and a slower recovery in our MENA (Middle East and North Africa) destinations than we had expected,” Acting Chief Executive Sam Weihagen told reporters on a conference call.
Weihagen said he did not believe the company’s future was under threat.
“Thomas Cook is a very strong business and we have excellent business segments outside the UK like in Scandinavia and in Germany I think it’s a robust business that has a great future,” he said.
Thomas Cook also delayed the publication of its final results, due on Thursday, until discussions with its banks have been concluded.
“As a result of deterioration of trading in some areas of the business in the current quarter, and of its cash and liquidity position since its year end, the company is in discussions with its principal lending banks with regard to its facilities during the seasonal low period of cash in the business,” Thomas Cook said.
“While the company remains in compliance with its financing covenants, it also intends to seek agreement from its lending banks to adjustments that will improve its resilience if trading conditions remain difficult,” it said.
Finance director Paul Hollingworth said there was a risk the company could breach a key test of its financial health due in December: “But, currently, we are in compliance based on our latest view on trading which obviously was not positive. The combination of trading and the impact on our cash position has made covenants tighter.”
Hollingworth said the company was looking to borrow around 100 million pounds from its 17-stong banking syndicate. That is in addition to the 100 million pounds short-term credit line Thomas Cook agreed with its banks following talks in October.
Shares in rival TUI Travel (TT.L), which have proved more resilient, were down 9.9 percent to 135.7 pence.
French holiday company Club Med (CMIP.PA) told Reuters on Tuesday its shift upmarket would help it through tough economic times ahead.
($1 = 0.6400 pound)
(Editing by David Cowell)
