Struggling Thomas Cook flies towards £400m bank deal | Business News
Thomas Cook Group is racing to secure a cushion of up to £400m from its lenders as it prepares to report results that will underline the challenges facing the package tour industry.
Sky News has learnt that Thomas Cook is in advanced negotiations with its syndicate of banks about providing the new debt funding amid growing pressure on the company to shore up its balance sheet.
A statement confirming that it has secured the new borrowing headroom – which would come on top of existing facilities of £875m – could come alongside its half-year results on 16 May.
City sources said on Friday that Thomas Cook, one of the oldest names in the British travel sector, was trying to secure the additional financing before its auditor is required to provide a going concern statement as part of the results announcement.
They added that the company did not require any new money to see it through the crucial summer holiday season.
The disclosure that it is in advanced talks with lenders comes after a turbulent couple of days on financial markets for Thomas Cook, which saw the price of its bonds fall sharply on Thursday amid doubts about its ability to repay its debts.
That, in turn, triggered a 15% slump in its shares, meaning the company now has an equity value of less than £350m.
News of the £400m borrowing request to its banks comes just days before a May 7 deadline for bidders to lodge expressions of interest in Thomas Cook’s airline operation.
Reuters reported this week that Indigo Partners, a prominent aviation investor, was among the parties expected to bid.
Talks about the airline sale are complicated by the need to strike a deal for Thomas Cook’s holiday customers to travel on its planes.
The move to seek a bigger debt buffer from its lenders underscores the problems facing the business as it contends with an inflated high street cost base even as consumers increasingly turn to digital channels to book holidays.
Brexit-related uncertainty is also being blamed for a soft opening to the summer season.
If an agreement is reached with its lenders, the £400m of additional borrowing firepower should provide insurance against any further sharp downturn in the company’s performance.
Thomas Cook’s auditor, EY, is understood to have been assessing its potential liquidity requirements over the next 18 months.
It comes at a tumultuous time for the 178-year old company, which faces losing its independence if concrete takeover bids materialise.
Sky News revealed last month that the strategic review of Thomas Cook’s airline had triggered interest from prospective bidders for its tour operating business, as well as in the whole company.
Fosun, the Chinese owner of Club Med, has been steadily increasing its stake in Thomas Cook, which now stands at over 18%.
However, EU regulations would prohibit a Chinese owner of Thomas Cook’s airline.
The company has brought in advisers from AlixPartners to work on its balance sheet and cost reduction plans, while its syndicate of more than a dozen lenders has hired FTI Consulting to advise them.
Crucially, Thomas Cook has come through the part of the year when its cash reserves are at their lowest, with cash now being accumulated ahead of the crucial summer season.
Last month, the company said it would close 21 high street shops and pare back its retail workforce as part of an attempt to exert a tighter grip on costs.
A much larger proportion of its 566-strong chain is likely to disappear in the coming years.
The entire sector is being ravaged by a brutal price war, while industry executives say uncertainty about the timing and nature of Brexit is prompting consumers to delay booking overseas holidays.
In recent months, rival TUI has been forced to issue two profit warnings, with the grounding of Boeing’s 737 MAX fleet a factor in its financial downturn.
EasyJet has also warned of slow summer sales.
Doubts about the sustainability of Thomas Cook’s borrowings have plagued the company for years.
In 2013, it underwent a £1.6bn capital restructuring under Harriet Green, its former chief executive, which involved a rights issue and share placing.
Peter Fankhauser, its chief executive, has described last year’s performance as “disappointing” but outlined a plan to turn the business around which requires greater investment in its own hotel portfolio.
Thomas Cook has also removed a significant amount of capacity from both parts of the group as demand has softened.
A spokeswoman for the company declined to comment.