Thomas Cook debt-holders scramble for protection against default

LONDON (Reuters) – The cost of insuring debt issued by Thomas Cook (TCG.L) against default hit a record high and its bonds tumbled on Tuesday, as worries about the travel company’s borrowings deepened following its second profit warning in as many months last week.

FILE PHOTO: The Thomas Cook logo is seen in this illustration photo January 22, 2018. REUTERS/Thomas White/File Photo

The world’s oldest tour operator said last week it was not in breach of its banking agreements, its lenders remained supportive and it had enough breathing space to handle the debt.

The company, which employs more than 21,000 people, declined to comment on Tuesday.

Last week, Thomas Cook cut its profit guidance and suspended its dividend, blaming a summer heatwave that swept northern Europe for deterring people from going on holiday.

The company’s five-year credit default swap TCG5YEUAM=MG, reflecting the cost of protecting against a default on its debt, jumped 73 basis points from Monday’s close to 1,071 basis points, IHS Markit data showed.

The price equates to a 60 percent implied probability of default, one trader said.

The price of the company’s 2022 euro-denominated bonds XS1531306717=TE tumbled more than 13.5 cents to a record low of 69.51 cents, according to Refinitiv Eikon data.

Its shares, which have plunged more than 60 percent in the past week, were down 14.6 percent at 1130 GMT, giving the firm an equity market value of 363 million pounds ($465 million).

That is the smallest on Britain’s FTSE-250 mid-cap share index .FTMC and below the company’s last published net debt figure of 389 million pounds.

On Tuesday, the Telegraph newspaper reported that Chief Executive Peter Fankhauser was in private talks with institutions to calm nerves after the company’s shock profit warning and share price plunge.

“The debt, in itself, when the operating performance was fairly good like last year, was adequate,” said Leandro de Torres Zabala, a senior director at credit ratings agency S&P Global.

“When operating performance weakens then of course on a proportional basis the debt becomes higher.”

S&P cut its outlook on the company’s rating to “negative” from “stable” on Thursday, saying its leverage – debt-to-core earnings (EBITDA) – was too high at 5.9 times.

“We think that TCG (Thomas Cook Group) shares are currently uninvestable,” said Berenberg analysts in a note on Friday cutting the stock to a “sell” rating.

Graphic – Thomas Cook CDS:

Reporting by Karin Strohecker, Helen Reid and Josephine Mason; Editing by Kirsten Donovan and Mark Potter

Our Standards:The Thomson Reuters Trust Principles.

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