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Thomas Cook races to raise extra £200m to secure rescue deal

If the company cannot secure the extra funding it risks going bust.

Article originally published by The Guardian. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

The future of Thomas Cook is hanging in the balance as the travel company scrambles to raise an additional £200m to secure an emergency rescue deal.

Britain’s oldest package-holiday firm must secure the funds before a crucial meeting next Friday after a last-minute demand from its lenders, which include about 10 banks led by RBS, Barclays and Lloyds.

In the past fortnight, the banks told Thomas Cook it needed the extra money as a contingency to see it through the winter, on top of a £900m package that was close to being finalised.

If the company cannot secure the extra funding it risks going bust. That would force the Civil Aviation Authority (CAA), the government-backed aviation regulator, to pick up the estimated £600m cost of repatriating British holidaymakers. Tens of thousands of Britons are estimated to be overseas on the group’s holiday packages.

Thomas Cook, which employs 20,000 staff including about 9,000 in the UK, is battling to secure the terms of a complex refinancing agreement, which involves the Chinese conglomerate Fosun, its lenders and bondholders.

Tough competition from online rivals, as well as one-off factors such as Brexit, have weighed on the company’s recovery after its near-collapse in 2011. High prices of jet fuel and hotels have also pushed up costs, while last summer’s heatwave convinced potential customers to stay at home, which further affected earnings.

In August the company published details of the planned restructure, which included a £450m cash injection from Fosun International in return for a majority stake in Thomas Cook’s tour-operating business and a stake in its airline. The Club Med owner first invested in Thomas Cook in 2015 and is building some of its hotels in China as part of a joint venture.

Under the deal, lenders are being asked to write off more than £1.7bn of debt in return for a stake in the business. Existing shareholders are being wiped out in the deal.

A vote on that process takes place on 27 September. That crunch vote was delayed earlier this week to give the stricken tour operator more time to smooth out obstacles to its rescue package.

In court filings seen by Sky News last week, Thomas Cook said it was running out of cash and needed to finalise the deal quickly. “The serious liquidity issues within the group have led to an urgent need to complete any restructuring within September,” it said.

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Thomas Cook said the £900m would be enough to help the company avoid bankruptcy as it heads into winter, when holiday bookings are at their lowest. But its lenders have decided the company needs extra contingency funding to keep it going through the quiet trading period.

The company is understood to be in talks with a number of potential parties about the £200m funding, which could take the form of a loan or cash injection. The company needs to secure assurance that funds will be forthcoming in the next few days or administrators will be called in.

Thomas Cook must secure some form of new funding by October because it has to pay hoteliers and other suppliers.

The 178-year-old global travel group also needs to persuade the CAA, which administers the Air Travel Organiser’s Licence (Atol) scheme covering travel companies, that it should renew its licence at the end of this month for another 12 months.

The company is understood to be considering a number of alternative options in case its Fosun-backed deal collapses. These include the sale of its Nordic airline and tour operator to Triton, a private equity firm.

Thomas Cook’s share price has dived more than 90% in the last year to just 4.5pand the company is now valued at less than £70m.

The CAA declined to comment.


This article was written by Sarah Butler from The Guardian and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Article originally published by The Guardian. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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