Thomas Cook announcing D/E swap

All,

The expected:

TCG have given a statement according to which summer tour bookings are down -9% and airline sales down -3%, despite a price rise of 2%.

The Airline sale is suspended and will likely remain so.

The company is in discussion with Fosun and lenders to explore the mechanics of a debt/equity swap.

Fosun are ready to protect their / make an investment.

The news:

Fosun would participate in a new capital injection alongside the banks, subject to a D/E swap. That would see Fosun take control of the tour operator, but only a “significant stake” in the Airline - as there are regulatory limits in place. Presumably therefore the banks would hold the majority of the Airline as a result.

The questions:

How will be bonds be fearing in this? Much could depend on the structure of the proceeds loans, which is not public information. The bonds have not been “sitting at the table” at which the plan has been hatched and thus are likely sitting at the back of the bus. Bonds are theoretically pari passu to the banks for most of the balance (except the recently structured Super Sr. E300m whose security we believe will have already hardened, even though not yet in place).

A number of £750m has been mentioned in relation to a capital injection. Some of it would come from Fosun - likely in cash for new shares. What commitments the banks are ready to make for their share is not clear from the information this morning. But if the banks and Fosun are already lining up for fresh cash does also not bode well for the bondholder’s ability to protect their investment.

Tomas has the details.

Wolfgang