Thomas Cook Plc’s bonds tumbled to record lows yesterday following a string of reports raising questions over the company’s ability to return to profit and avoid being crushed under a pile of debt.
The bonds hit a record low and the shares have fallen as much as 60% in three trading days as Sky News reported that a payment intermediary would be withholding money from the Thomas Cook.
Meanwhile, analysts have suggested that a debt-to-equity swap would be a potential solution for the world’s second-biggest holiday company to fix its debt-heavy balance sheet.
The maturing in 2022 tumbled 14 cents on the euro to 33.36 cents, based on data compiled by Bloomberg. They have lost more than 50% of their value this year as the junk-rated company faces mounting losses and an increasing debt pile.
A payment company working with Thomas Cook in the Nordic region is in talks to extend to several weeks instead of two days, the period for which it retains payments for trips, Sky News reported without saying how it got the information. A Thomas Cook spokeswoman later confirmed the company is in discussions with the Nordic card supplier and that they expect an “acceptable solution in the coming days.”
“There’s definitely a prevalence of fear in the market. The Sky News story shouldn’t really be a huge surprise...similar to retailers like Debenhams when suppliers were refused credit insurance, it’s a natural reaction,” said Neill Keaney, an analyst at CreditSights. “However, the headlines are undoubtedly going to stress bookings.”
Thomas Cook is the most dramatic outcome so far of a tough business environment for European travel and airline companies grappling with a glut of capacity, stuttering economic growth and high fuel prices. Market leader Deutsche Lufthansa AG has frozen expansion at its discount arm, while Ryanair Holdings Plc warned yesterday its profit may fall further this fiscal year.
The Sky news report yesterday added to concern over the travel agent’s financial health after it posted a £1.1bn ($1.4bn) write-down at a UK arm last week and it warned of another tough summer ahead.
Thomas Cook should undertake a “substantial debt for equity swap” to improve its balance sheet, Citigroup analyst James Ainley wrote in a note to clients on Monday. Converting £1bn in outstanding bonds would allow the company to save interest payments and remain in business in the long run, while it also likely would mean there would be “little or no value for the existing equity holders,” he said.
Thomas Cook’s bonds hit a record low and the shares have fallen as much as 60% in three trading days as Sky News reported that a payment intermediary would be withholding money from the company
