TUI Pre close statement, no surprises, bondholders still reliant on equity raise

All,

Tui bonds sit in a unique position.  From a pure credit perspective, the bonds should trade lower than current levels, with significant uncertainty over future liquidity remains.  However, the bonds rank pari-passu with the existing and future KfW facilities.  Additionally, with speculation of rights issue, the bonds have maintained their levels in the mid-90s.   At current levels, 6-7% yield to maturity of October 2021, we are not taking a position in the name currently.  

On cashflow, guidance for Q1 FY21 (October-December) is for continued outflows in Working Capital, but lower than normal year, with monthly cash outflow to be low to mid-single-digit millions per month. Therefore, by the time the Company report in December with their FY20 accounts (September year-end), the cash balance will have reduced from current €2bn to c. €1bn.  With uncertainty likely to remain in the travel market in December, the Company are likely to require additional liquidity to maintain trading through FY21.  There has been press speculation recently of rights issue and potentially some asset sales, although asset sales in the current environment are unlikely to achieve reasonable prices.  

TUI released their pre-close statement this morning, with €2bn of cash and availability as of 20th September.  For clarity, this is proforma for the recent €1.2bn stabilisation package confirmed with the German Federal Government.  The Company continue to attempt to conserve cash and manage capacity, reducing Winter capacity to 25% of “normal”.  Recent changed in travel advice has led to higher customer refund obligations (coupled with the recent UK CMA verdict) and therefore negative working capital over the last couple of weeks.  This has led to TUI guiding to cash outflow for late August and September.  Happy to discuss. 

Tomás