- Shares in Thomas Cook Group slumped by more than 70 per cent on Tuesday
- Struggling tour operator admitted it was having to renegotiate the terms of its gross debt
Shares in Thomas Cook Group slumped by more than 70 per cent on Tuesday after the struggling tour operator admitted it was having to renegotiate the terms of its gross debt burden for the second time in just over a month.
The company is seeking a further £100m from a syndicate of 17 banks, including the UK's four large high street lenders. Last month, the tour operator announced it had agreed a £100m loan deal with the syndicate, which it had hoped would end speculation that it might breach its banking covenants.
Sam Weihagen, interim chief executive, said trading since the group's end of year in September had been worse than expected, piling further pressure on Thomas Cook's cash flow during the slow winter booking season.
"We have seen some deterioration in our trading post the year-end, and that has put pressure on our cash and liquidity position," Mr Weihagen said. He blamed the group's lack of bookings on the eurozone crisis and a sluggish recovery in tourism to the Middle East and north Africa.
The shares in Europe's second-biggest tour operator closed 75.2 per cent down at 10.2p, giving it a market capitalisation of £89m. Fitch, the rating agency, placed Thomas Cook on negative watch.
Thomas Cook's net debt at the end of September was just less than £900m. According to Nick Batram, analyst with Peel Hunt, Thomas Cook's debt position, including its pension deficit, could peak at £2bn.
"Given this and the trading backdrop, a recapitalisation of the business looks inevitable. If an equity injection of £700m or more is required, then we believe the current equity would be of only nominal value," he said.
The latest set of talks with its banks follow a terrible year for the tour operator, which has issued three profit warnings since January and seen the departure of several senior executives, including Manny Fontenla-Novoa, its chief executive of 11 years.
Thomas Cook's cash flow is seasonal because fewer holidays are booked and paid for in the winter, prompting speculation that the group could breach its obligations around Christmas time.
However Paul Hollingworth, finance director, said he was sure of his lenders' backing.
Thomas Cook has 1,300 travel shops in the UK and employs 30,000 people. Its size means that European governments will be anxious that the banks ensure its survival.
The UK's Civil Aviation Authority, which protects customers if tour operators cease trading, would go bankrupt if Thomas Cook went out of business, said Steve Endacoot of On Holiday Group, a rival operator.
The Association of British Travel Agents said all Thomas Cook packages were fully protected.
Thomas Cook's Mr Hollingworth said: "We are confident that we will get the full support of our lenders. The rational and right thing for them to do is to support Thomas Cook over this period until we can trade robustly in the peak season."
He said that the deterioration in sales had come to light only on Monday, when the group held a meeting to assess the travel company's trading.
The lack of clarity prompted Thomas Cook to delay the release of its full-year results, which were originally scheduled for November 24.
In last month's debt covenant renegotiation, the lenders agreed that the group's adjusted net debt could now be up to 4.5 times earnings, before interest, tax, depreciation, amortisation and restructuring costs at the end of December, and up to 4.25 times after that.
That is an increase from 3.75 times ebitdar that was agreed in May 2010 -- before the trading was squeezed by factors including the impact of the Icelandic volcanic ash cloud.