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Thomas Cook Euro Bonds Plunge to Record Low as Woes Mount

Tasos Vossos and Richard Weiss
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Thomas Cook Euro Bonds Plunge to Record Low as Woes Mount

(Bloomberg) -- Thomas Cook Plc’s bonds tumbled to record lows on Monday following a string of reports raising questions over the company’s ability to return to profit and avoid being crushed under a pile of debt.

The bonds hit a record low and the shares have fallen as much as 60% in three trading days as Sky News reported that a payment intermediary would be witholding money from the Thomas Cook. Meanwhile, analysts have suggested that a debt-to-equity swap would be a potential solution for the world’s second-biggest holiday company to fix its debt-heavy balance sheet.

The maturing in 2022 tumbled 14 cents on the euro to 33.36 cents, based on data compiled by Bloomberg. They have lost more than 50% of their value this year as the junk-rated company faces mounting losses and an increasing debt pile.

A payment company working with Thomas Cook in the Nordic region is in talks to extend to several weeks instead of two days, the period for which it retains payments for trips, Sky News reported without saying how it got the information. A Thomas Cook spokeswoman later confirmed the company is in discussions with the Nordic card supplier and that they expect an “acceptable solution in the coming days.”

“There’s definitely a prevalence of fear in the market. The Sky News story shouldn’t really be a huge surprise...similar to retailers like Debenhams when suppliers were refused credit insurance, it’s a natural reaction,” said Neill Keaney, an analyst at CreditSights. “However, the headlines are undoubtedly going to stress bookings.”

Thomas Cook is the most dramatic outcome so far of a tough business environment for European travel and airline companies grappling with a glut of capacity, stuttering economic growth and high fuel prices. Market leader Deutsche Lufthansa AG has frozen expansion at its discount arm, while Ryanair Holdings Plc warned Monday its profit may fall further this fiscal year.

Read More: Ryanair Stock Falls as Price War Threatens Summer Profits

Debt Swap

The Sky news report on Monday added to concern over the travel agent’s financial health after it posted a 1.1 billion-pound ($1.4 billion) writedown at a U.K. arm last week and it warned of another tough summer ahead.

Thomas Cook should undertake a “substantial debt for equity swap” to improve its balance sheet, Citigroup analyst James Ainley wrote in a note to clients on Monday. Converting 1 billion pounds in outstanding bonds would allow the company to save interest payments and remain in business in the long run, while it also likely would mean there would be “little or no value for the existing equity holders,” he said.

Citi’s note today followed a report on Friday in which Ainley cut his price target on the stock to zero pence from 28 pence. Thomas Cook shares fell as much as 17% on Monday, following a 40% drop on Friday, leaving the company’s market value now about 150 million pounds.

Read more: Thomas Cook Should Swap Its Debt for Equity, Citigroup Says

(Adds company’s confirmation of ongoing talks with card supplier in fourth paragraph.)

--With assistance from Beth Mellor.

To contact the reporters on this story: Tasos Vossos in London at tvossos@bloomberg.net;Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Vivianne Rodrigues, Tara Patel

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