Thomas Cook Seeks Cash As Trading Worsens

November 22, 2011

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Beleaguered tour operator Thomas Cook said it had instigated fresh talks with its banks after a further deterioration in its trading performance and cash position left it in danger of defaulting on the terms of its borrowing.

Shares in Europe's second-biggest travel firm, which had already lost over 80 percent of their value this year, slumped in early trading.

"As a result of deterioration of trading in some areas of the business, and of its cash and liquidity position since its year end, the company is in discussions with its principal lending banks with regard to its facilities during the seasonal low period of cash in the business," Thomas Cook said.

The company, which had issued a string of profit warnings leading to the departure of its chief executive, said it was currently in compliance with its financial covenants but was seeking adjustments to the terms of its borrowing to improve its resilience if trading remains difficult.

Thomas Cook has been hit hard by tough trading conditions, especially in Britain, where its core customer base of families with young children has been hit by the tough economic conditions.

"That Thomas Cook needs to negotiate with the banks within two months shows that trading conditions across its mass-market product have deteriorated much faster that it or its bankers expected," said Espirito Santo analyst Geetanjali Sharma.

Evolution analyst James Hollins said it was shocking that Thomas Cook needed to renegotiate its financing just 32 days after a previous deal with its lending banks was agreed.

"Legitimate questions will be asked as to whether Thomas Cook can survive long-term and/or whether there is any value left in its equity," Hollins said.

Acting chief executive Sam Weihagen said the share price decline was a concern but insisted the company's future was secure.

"Thomas Cook is a very strong business and we have excellent business segments outside the UK like in Scandinavia and in Germany. I think it's a robust business that has a great future," he said.

Finance director Paul Hollingworth said the company was looking to borrow around GBP£100 million (USD$156 million) to tide it over during December, when trading is traditionally quiet, and give it sufficient headroom to be in no danger of breaching banking covenants.

That is in addition to the GBP£100 million short-term credit that Thomas Cook agreed with its banks following talks in October.

"It's a combination of the trading and its impact on our cash position making covenants tighter. The sensible, prudent thing for the company to do is enter into these discussions with the lenders and make sure we get the additional liquidity," Hollingworth said.

(Reuters)