KME Chartered Accountants

August 28,2019

Debt-laden U.K. travel giant Thomas Cook Group Plc secured the backing of its lending banks and bondholders for a 900 million-pound ($1.1 billion) bailout led by Chinese investor Fosun Tourism Group.

Fosun will provide half of the total in return for control of Cook’s tour-operator arm and a stake in its airline, the London-based holiday firm said Wednesday. Banks and noteholders will contribute the rest, while converting their existing debt into stock.

The bailout, first announced in July, provides stability for Cook as it prepares for the coming winter low season, when tour operator profits are traditionally squeezed. The bonds surged, while the shares, which will be significantly diluted, declined as much as 18%.

For Fosun Tourism, listed separately from its parent since December, the transaction marks the acquisition of its second sizable tourism asset in Europe, after the purchase of iconic French resort company Club Mediterranee in 2015.

The deal will leave Fosun holding at least 75% of Cook’s main holiday business and around 25% of its airline division. Lenders will get the rest of the airline and up to 25% of the tour business.

Other investors may be given the opportunity to participate in the recapitalization, while Cook also said for the first time that the main Plc — which will become a shell with few assets — could ultimately be de-listed.

Thomas Cook’s 750 million euros ($831 million) of bonds due 2022 rose as much as 48% on the euro to 30.4 cents, the highest in three weeks, according to Bloomberg data. The stock fell 15% to trade at 6 pence as of 9:07 a.m. in London.

Margins at Thomas Cook have been shrinking amid a sluggish European vacation market as more people holiday at home following successive summer heatwaves. Uncertainty over the economic impact of Brexit has also weighed on demand, leading the company to predict a lower second-half operating profit.

The transaction leaves the way open for a possible sale of Cook’s airline arm. The company earlier sought a buyer for the business, which includes Germany’s Condor and operates about 100 jets. As a non-European entity, Fosun cannot own a majority stake in the carrier without losing traffic rights.

The recapitalization remains slated for completion in early October, subject to antitrust approval and a legally-binding accord between the parties. Cook will launch inter-conditional creditor schemes of arrangement seeking consent to amend terms of its 2022 and 2023 notes and a 2017 revolving credit.

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