Thomas Cook has announced that it’s secured a £1.4 billion debt-refinancing deal that will ensure its future. This is an extension of its financing for two years until May 2015, under which the group’s lenders give it a more stable capital structure and flexibility for repaying the debt when it can.
The company had a bad year last year as families cut back on holiday spending due to the UK economy, as well as tightened their belts in other areas. It reported a wider pretax loss of £151.7 million for the three months to December 31, up from the £99.3 million loss it reported the year before and despite a 3% increase in revenue to £1.86 billion. Over the last year, its shares have fallen from over 170p to 21p at close on Friday. In November, it needed a £200 million bailout.
Additionally, last August chief executive Manny Fontenla-Novoa left Thomas Cook when it was forced to go to its 17 lenders for new financing. The group still doesn’t have a permanent chief executive to replace Fontenla-Novoa, but chairman Frank Meysman says the search for a permanent replacement is going well. Sam Weihagen, an industry veteran and Fontenla-Novoa’s deputy, has taken on the interim chief executive role until the position is permanently filled. The chairman added that the board is making good progress to strengthen the company’s financial position.
The progress Meysman speaks of relates to Thomas Cook selling off some assets. It confirmed nearing a sale-and-leaseback of about 17 and 19 of its aircraft, of which there are 91 in the fleet. It’s believed the deal could give the group about £100 million. The travel agent is also selling a 51% hold in Hoteles Y Clubs De Vacaciones, which is the indirect owner of several hotels and a golf club in Spain. The group could stand to get about £75 million for the sale. Both of these deals would significantly help reduce its £890 million mountain of debt, while the company has already cut net debt by £135 million.
On top of these sales, Thomas Cook has committed to a review of its poor Canadian, French and Russian business performances. The travel agent added in its refinancing announcement that there’s significant scope to enhance the results of the businesses. However, it warned conditions in the French market are still very challenging. On the other hand, the company says it sees more potential to build on the solid performance of its German and Northern businesses – like further cost control and increasing online distribution.
Weihagen says these actions are vital in the journey to strengthen confidence and make sure Thomas Cook will continue providing wonderful travel experiences to customers for years to come. The announcement also highlights their lenders’ confidence in the company.
Meanwhile, the group’s banks – which include Royal Bank of Scotland and Barclays – are due to secure £14 million in fees as a result of Thomas Cook agreeing to the refinancing deal. This is because the £1.4 billion package includes a 1% fee that will be paid to the 17 lenders just for their approval to change the terms of their loans. The bank consortium has also been given the option to purchase a 10% share of the travel agent before May 2015 at 8p per share – which is a substantial discount.
Also under the deal, Thomas Cook has to submit a yearly ‘cash sweep’, which will see any money over £250 million in the business be used to pay off its debt – with a minimum £100 million to be handed over in March 2013 and March 2014. If the company doesn’t comply, it will face a 2% fine of its outstanding debts when the refinancing expires in 2015.
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