Hedge funds cash in as Thomas Cook falls
HeDGe funds are cashing in on the crisis at Thomas Cook.
As the 178- year- old travel agent battled for survival, data showed that its shares were the most bet-against in the UK.
About 10.7pc of its shares were being ‘shorted’ yesterday, with the positions taken by hedge funds thought to be worth at least £5.7m.
But the paper profit some have made over the past six months is likely to be far higher, as Thomas Cook’s share price crashed 89pc over the period.
Among the vultures betting against the stricken firm is Whitebox Advisors, which was one of a handful of funds that made a killing by betting against the US sub-prime mortgage market in the run-up to the financial crisis. That deal was known as ‘The Big Short’ and was later depicted in a film of the same name starring Christian Bale and Steve Carell.
A short position is effectively a bet that a company’s stock price will fall. Short- sellers borrow shares from investors at a set price and aim to return them when the share price falls, pocketing the difference in value. This means that if a company goes bust, short-sellers don’t have to pay anyone back because the shares are worthless, but they are still paid the difference in price from when they borrowed them.
Russ Mould, investment director at broker AJ Bell, said: ‘If the firm collapses, hedge funds will be left with substantial gains.’
Some hedge funds have also bought swathes of Thomas Cook’s debt and taken out credit default swaps, which essentially function as insurance if it goes bust.
Thomas Cook was fighting for survival after its lenders – including Royal Bank of Scotland and Lloyds – made a shock demand for more cash to keep it going during the quiet winter period.
The firm had previously agreed a £900m rescue deal with creditors and shareholders, but the banks said an extra £200m was needed on top of this or they would pull support – potentially forcing bosses to call in administrators. Round-the- clock talks were taking place over the weekend to break the impasse, amid the prospect of up to 165,000 customers who are abroad being left stranded if Thomas Cook goes under. There were calls for the Government to bail out the company, but ministers have refused, saying it would set a precedent for any big firms that were in trouble. Thomas Cook chief executive Peter Fankhauser ( pictured), 58, was understood to be leading last- ditch talks in London yesterday. He had earlier emailed employees to thank them for continuing to work and vowed not to ‘let this business fall over without a fight’. Airline rivals are expected to tussle over the firm’s assets if it goes under, including 200 landing slots at Gatwick and Manchester airports. And about £1.6bn in retirement obligations would also be transferred to the Pension Protection Fund, with pensioners facing 10pc cuts to their nest eggs. Thomas Cook did not comment last night.