Wor­ries at old­est tour op­er­a­tor

Cyprus Today - - NEWS -

THE cost of in­sur­ing debt is­sued by Thomas Cook against de­fault hit a record high and its bonds tum­bled on Tues­day, as wor­ries about the travel com­pany’s bor­row­ings deep­ened fol­low­ing its se­cond profit warn­ing in as many months last week.

The world’s old­est tour op­er­a­tor said last week it was not in breach of its bank­ing agree­ments, its lenders re­mained sup­port­ive and it had enough breath­ing space to han­dle the debt. The Bri­tish com­pany, which em­ploys more than 21,000 peo­ple, de­clined to com­ment on Tues­day.

Last week, Thomas Cook cut its profit guid­ance and sus­pended its div­i­dend, blam­ing a sum­mer heat­wave that swept north­ern Europe for de­ter­ring peo­ple from go­ing on hol­i­day.

The com­pany’s five-year credit de­fault swap, re­flect­ing the cost of pro­tect­ing against a de­fault on its debt, jumped 73 ba­sis points from Mon­day’s close to 1,071 ba­sis points, IHS Markit data showed.

The price equates to a 60 per cent im­plied prob­a­bil­ity of de­fault, one trader said.

The price of the com­pany’s 2022 euro-de­nom­i­nated bonds tum­bled more than 13.5 cents to a record low of 69.51 cents, ac­cord­ing to Refini­tiv Eikon data. Its shares, which have plunged more than 60 per cent in the past week, were down 14 per cent this week, giv­ing the firm an eq­uity mar­ket value of about £363 mil­lion.

That puts it on course to be de­moted from Bri­tain’s FTSE 250 mid-cap share in­dex and is be­low the com­pany’s last pub­lished net debt fig­ure of £389 mil­lion.

S&P cut its out­look on the com­pany’s credit rat­ing to “neg­a­tive” from “sta­ble” on Thurs­day, say­ing its lever­age, debt-to-core earn­ings, was too high at 5.9 times.

Bern­stein an­a­lyst Richard Clarke said there was spec­u­la­tion Thomas Cook might need to raise more eq­uity, and that its shares could also be suf­fer­ing from un­cer­tainty over Bri­tain’s de­par­ture from the Euro­pean Union.

“If you think that Brexit gets more dan­ger­ous, then you’re not go­ing to be want­ing to buy into Thomas Cook at this stage be­cause the fear will be that they’re go­ing to have to do a cap­i­tal raise,” he said.

On Tues­day, the Tele­graph news­pa­per re­ported that Chief Ex­ec­u­tive Pe­ter Fankhauser was in pri­vate talks with in­sti­tu­tions to calm nerves af­ter the com­pany’s shock profit warn­ing and share price plunge.

A Thomas Cook spokesman con­firmed the CEO was meet­ing in­vestors, which he said was nor­mal af­ter re­sults.

Thomas Cook’s big­ger ri­val Tui Group has bet­ter coped with the sum­mer heat­wave, helped by its greater own­er­ship of ho­tels and a large cruise ship busi­ness, which boost mar­gins and mean its prof­its are less ex­posed to un­pre­dictable trad­ing.

This is not the first time large debts have com­bined with tough trad­ing to hurt Thomas Cook. It was last plunged into cri­sis in 2011, when un­rest in key des­ti­na­tions such as Egypt and Tu­nisia al­most brought the com­pany to its knees.

The cur­rent share price pres­sure on Thomas Cook, which also owns an air­line busi­ness, is be­ing ex­ac­er­bated by mar­ket neg­a­tiv­ity to­wards air­line stocks. They have been hit this year by oil price rises and wor­ries over fur­ther pos­si­ble air­line col­lapses af­ter those of Air Berlin and Monarch in 2017.

There was me­dia spec­u­la­tion in July Thomas Cook could sell its air­line but Mr Fankhauser ruled that out at the time.

The bil­lion­aire co­founder of Chi­nese con­glom­er­ate Fo­sun, Guo Guangchang, owns a 13 per cent stake in Thomas Cook, ac­cord­ing to Refini­tiv data. Fo­sun and Thomas Cook op­er­ate a joint ven­ture.

A Thomas Cook Air­bus A330 air­craft pre­pares to take off from Manch­ester air­port

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