Thomas Cook has acknowledged a request from its lenders to raise an additional £200 million necessary to secure a rescue deal, led by its largest shareholder.
The setback comes ahead of what is likely to be a pivotal vote on the deal, which was this week pushed back from Wednesday (18 September) to next Friday (27 September).
City sources, cited by the national press, report Cook’s lenders have told the operator to secure the standby funding, or headroom, in addition to the £900 million restructuring package agreed with Chinese travel giant Fosun earlier.
It is understood the cash is being sought to protect against likely winter pressures. Cook has historically factored significant financial headroom into its winter preparations to firm up its balance sheet.
Cook confirmed on Friday morning (20 September) the request for the additional £200 million, adding talks were ongoing over the “final terms” of a proposed recapitalisation and reorganisation of the business with Fosun, its core lending banks and noteholders.
On Thursday (19 September), Sky News reported Cook had revived talks with Sunweb parent Triton Partners over a bid for its Northern European business.
Cook confirmed in May that Triton had made a “highly preliminary and unsolicited indicative offer” for its operations, comprising both its tour operator and airline business, in Norway, Sweden, Finland and Denmark.
The Times, meanwhile, reported Cook had been in talks with the government about contingency planning in the event the operator is unable to continue trading.
Cook, at any one time, has hundreds of thousands of holidaymakers overseas across its numerous source markets, who would require repatriation, while a significantly larger number of customers will have forward bookings with the business.
Any such repatriation mission, if required, would likely far exceed the efforts – and cost – of repatriating passengers affected by the collapse of Monarch in October 2017.
In a trading update issued on Friday morning, Cook said: “Thomas Cook Group notes the recent media speculation regarding its proposed recapitalisation.
“Discussions to agree final terms on the recapitalisation and reorganisation of the company are continuing between the company and a range of stakeholders, including its largest shareholder, Fosun Tourism Group and its affiliates, the company’s core lending banks and a majority of the company’s 2022 and 2023 senior noteholders.
“These discussions include a recent request for a seasonal standby facility of £200 million, on top of the previously announced £900 million injection of new capital.
“The recapitalisation is expected to result in existing shareholders’ interests being significantly diluted, with significant risk of no recovery. The company will provide further updates in due course.”
Cook came to “significant” terms with Fosun over a £900 million rescue deal last month, which would see the operator divided up.
Fosun would inject £450 million fresh funding and take a majority stake in Cook’s tour operator and a minority stake in its group airline.
A further £450 million would be put up by Cook’s lenders to secure a majority stake in the airline and a minority stake in the tour operator.
The cost of the rescue deal though has spiralled from around £750 million in July to around £1.1 billion, factoring in the headroom demanded by its lenders.
Cook is due to renew its Atol on 1 October, which will set out its capacity for the winter and the 12 months through October 2020.
Cook was licensed by the CAA to carry just shy of 2.5 million Atol-protected passengers during 2018/19 (1 October to 30 September).
On Monday (23 September), the Credit Derivatives Determinations Committee will meet to decide, for insurance purposes, whether Thomas Cook is technically insolvent.
If they decide it is, insurers will have to pay out and bondholders are more likely to back a deal next Friday. If the committee decides no payout is due, bondholders will get little to nothing in return, raising concerns about whether they will support the deal.
In recent days, the Thomas Cook Cares Twitter account has been inundated with enquiries from concerned customers seeking reassurances from the firm over their holidays.
Cook has responded by setting out its plans for recapitalisation, stressing the value of Atol protection, and stating the media speculation would have no impact on its operations.