Shareholders are already toast. Would China’s Fosun conglomerate follow the time-honored principle of throwing good money after bad?
Following yet another bleak week of trading, the shares of 178-year-old British global travel & vacation-giant and airline Thomas Cook, with 21,000 employees globally — 9,000 of them in the UK — are down to 5 pence, down 96% from 130 pence in May last year. At that time, Thomas Cook Group was worth £2.5 billion. Today, its worth a paltry £75 million.
The company now has just one lifeline left: a proposed £900 million rescue deal that would see its biggest shareholder, Chinese conglomerate and investment giant, Fosun, inject £450 million in return for a 75% stake in the group tour operator and a 25% stake in the group airline. Banks and bondholders would match that amount with a debt for equity swap in return for control of 75% of the equity of the Group Airline and up to 25% of new equity in the group tour operator.
Current shareholders would be virtually wiped out by the restructuring despite the company’s reassurances that they would “continue to retain an investment in the Company.”
Thomas Cook says it needs at least an additional £750 million to pay its suppliers and tide it over this winter. That’s on top of a £300 million credit line it already took out in May. Now, the company’s creditors are asking for more.
But there are still no guarantees that the refinancing and debt restructuring deal will work. In a court filing dated August 30, Thomas Cook warned that it was running out of time to secure its future. “The serious liquidity issues within the group have led to an urgent need to complete any restructuring within September.” According to a Sky News report published on Thursday, the deal needed to secure the restructuring looked “harder and more complicated than it did a few days ago.”
There appear to be three main obstacles:
One, a clutch of hedge funds that hold credit default swaps (CDS) on Thomas Cook’s debt are considering derailing the rescue plan in order to ensure they receive payouts on their CDS. According to Bloomberg, the proposed debt-for-equity swap, if successful, could wipe out compensation on their default insurance.
Two, Thomas Cook’s pension fund is also clamoring for improved terms in exchange for backing the recapitalization. Sources cited by Sky News said trustees of the pension fund are “seeking equity in the restructured company, funding guarantees and a commitment from the new owners to continue existing annual contributions of more than £25 million.”
Three, lenders are now demanding that Thomas Cook seek additional funding beyond the £900 million outlined last month to cover its £1.6 billion debt overhang. According to Sky, the company will need to raise an extra £100 million to close the deal.
Whether it comes up with that money will depend on how committed Fosun is to the restructuring deal.
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Nick Corbishley 