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Thomas Cook secures new funding

by Laura Board in London | Published November 28, 2011 at 11:38 AM

Shares in Thomas Cook Group plc on Monday, Nov. 28, recovered some of their recent losses after the troubled package tour operator secured £100 million ($154.4 million) in additional funding in its second refinancing in just over a month.

The stock was trading up 15% at 20.8 pence by early afternoon in London, giving the group a market value of £192.5 million.

Thomas Cook, whose shares plunged more than 70% on Nov. 22 when it disclosed a funding shortfall, said late Friday that lenders led by Barclays plc, HSBC Holdings plc, Royal Bank of Scotland Group plc and UniCredit SpA had agreed to provide a new £200 million revolving credit facility, available until April 30, 2013. That will replace the £100 million loan package announced Oct. 21.

In addition, the lenders for the second time relaxed the conditions attached to Thomas Cook's debt. For its part the company promised to conduct an unspecified strategic review, refrain from share buybacks, acquisitions and dividend payments, and limit capital expenditure.

Further details of the strategic review aren't expected until a full-year results announcement on Dec. 12. Peterborough, England-based Thomas Cook had warned Nov. 22 that its trading position had worsened since its Sept. 30 year-end and the stock looks likely to remain volatile amid speculation about just how far bookings have fallen.

"The news regarding financing is clearly positive but the extent of the trading decline that led to the events of the last week remains unclear and as such the outlook for the equity value is somewhat uncertain," wrote analysts at Credit Suisse Group, who have an outperform recommendation on the stock.

The banks' concessions included raising the limit on the company's debt-to-Ebitdar (earnings before interest, depreciation, amortization and rent) ratio to 5 times for the quarterly period ending December, up from 4.5 times before; to 4.75 times for the quarter ending March; and to 4.5 times thereafter.

Thomas Cook is paying the banks £10 million for the new arrangement and will also issue the lenders warrants equivalent to 4.9% of its share capital at a strike price of the average closing price for Nov. 25 and Nov. 28, exercisable until May 22, 2015.

The initial interest rate on the new facility is LIBOR plus 5%, increasing by 50 basis points each quarter to encourage the company to pay down borrowings.

The 170-year-old Thomas Cook also has a £150 million amortizing term loan and a £850 million revolving credit facility which mature in May 2014. Its banks have also provided £200 million of unsecured guarantee facilities to help reassure consumers.

Thomas Cook's internal problems have been compounded by outside forces ranging from Iceland's volcanic ash cloud, which closed swaths of Europe's airspace in April 2010, to this year's Middle East and North African "Arab Spring" uprisings, the euro-zone crisis and the U.K.'s own economic woes.

A series of profit warnings led to the August resignation of CEO Manny Fontenla-Novoa. Sam Weihagen is interim CEO. Weihagen on Friday thanked the banks "for acting so swiftly."

On Thursday former Sara Lee Corp. director Frank Meysman will replace Michael Beckett as chairman. Meysman is expected to review the company's board.

The company in August said it would raise £200 million from asset disposals, including hotels and office buildings, within 18 months. Additional sales now look likely to enable Thomas Cook to tackle its increasing debt burden.

Thomas Cook gained Competition Commission clearance in August to merge its travel agency chain with those of Co-operative Group and Midlands Co-operative.

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