Thomas Cook Group is in talks with its lenders to increase the size of a rescue fundraising to £1bn after Britain’s oldest travel agent warned it could face collapse unless it finalises a deal this month.
Sky News has learnt that fresh talks between Thomas Cook and its financial stakeholders in recent days have resulted in a request for more capital to be made available to the company than the £900m proposed last month.
Sources said on Thursday that its lending banks were seeking greater comfort about the tour operator’s financial headroom.
As a result, Thomas Cook is now in talks about an offer from creditors of an additional standby borrowing facility to provide that reassurance.
One City insider said that the standby facility was not expected to be drawn upon and that the travel group continued to believe that the £900m it has been in talks with stakeholders about for several weeks is sufficient.
Nevertheless, if confirmed it would take the aggregate size of the new money available to Thomas Cook to at least £1bn, and possibly as much as £1.1bn, as a cushion to help it survive tough trading conditions.
The additional demand is significant because the banks’ support – along with that of other creditors – will be required in order for the deal to be implemented.
It also adds a further layer of complexity to a situation made increasingly fraught by Thomas Cook’s need to finalise the rescue package in the coming weeks.
In a court filing dated 30 August seen by Sky News, Thomas Cook warned that it was running out of time to secure its future.
“The serious liquidity issues within the group have led to an urgent need to complete any restructuring within September.
“[Any] delay would make it impossible to implement a restructuring transaction within September, and the Scheme Companies would be likely to run out of money and enter into formal insolvency proceedings,” it said.
The warning was contained in a legal argument asking the courts to accelerate the process for implementing Thomas Cook’s refinancing.
Sources insisted that the deal timetable remained fluid and that finalising the transaction could slip into next month without any adverse consequences for the company.
In its most recent stock market announcement about the restructuring on 28 August, Thomas Cook referred to an “implementation commitment targeted for early October 2019”.
However, the legal filing is the starkest alert so far about the perilous situation confronting the 178 year old travel agent, which is being forced to address competing demands from a multitude of different stakeholders.
It also highlights the huge stakes involved in the rescue effort, with 21,000 jobs – 9000 of which are in the UK – potentially jeopardised if the deal does not get over the line.
Some 11 million customers will have travelled with Thomas Cook by the end of the crucial summer season, with tens of thousands of Britons currently overseas on holidays they have purchased from the company.
Last weekend, Sky News revealed that Thomas Cook’s pension trustees were insisting on sweetened terms in exchange for backing the recapitalisation.
Sources said the pension scheme, which is in surplus on an accounting basis, was seeking equity in the restructured company, funding guarantees and a commitment from the new owners to continue existing annual contributions of more than £25m.
Earlier this week, Bloomberg News reported that hedge funds which hold credit insurance contracts were considering whether to try to derail the rescue plan in order to ensure they received payouts.
Thomas Cook’s board has been meeting for the last two days to discuss the most viable path to finalising the restructuring before the company runs out of money in October.
The first in a series of stakeholder votes is due to take place next week.
One source said on Thursday night that the deal looked “harder and more complicated than it did a few days ago”.
Under the terms of the rescue plan, on which Thomas Cook said a fortnight ago it had reached “substantial agreement”, Fosun would inject £450m of new money into the company, in return for 75% of its tour operating business and not more than 25% of its airline.
EU ownership rules prohibit Fosun from controlling the Thomas Cook airline business.
Lending banks and bondholders would contribute £450m in aggregate and write off £1.7bn in existing debt in exchange for the remaining stakes in the two divisions.
That would leave shareholders being effectively wiped out by the restructuring – with the cancellation of Thomas Cook’s listing a likely consequence.
The lending banks are now understood to be keen for Thomas Cook to have additional funding available to it beyond the £900m outlined last month.
Thomas Cook needs the new money from the recapitalisation by early October in order to pay key suppliers.
It also needs to persuade the Civil Aviation Authority, which administers the ATOL scheme that covers travel companies, that it should renew its licence at the end of September for another 12 months.
Current trading is understood to remain difficult, with the ongoing political crisis in Westminster contributing to soft consumer demand for autumn and winter bookings.
Fosun Tourism, which owns Club Med, is understood to remain committed to the rescue deal, having built a big stake in the London-listed company during the last four years.
Shares in Thomas Cook have whipsawed for months as investors have sought to calculate whether the stock retains any residual value.
On Thursday, they closed at 5.1p, valuing the company at about £80m – down more than 93% over the last year.
Despite the calamitous decline, Fosun views Thomas Cook as a valuable platform for further expansion into the European travel market.
The British company was founded in 1841 by a 32-year-old cabinet-maker and former Baptist preacher who began offering one-day rail excursions from Leicester to Loughborough for a shilling.
From there, it went on to become one of the world’s largest holiday companies, marking its 175th anniversary three years ago.
Thomas Cook and Fosun have a joint venture in China which is showing strong growth, with an eightfold increase in customers last year.
The introduction of own-brand resorts in the world’s second-largest economy has also opened up the domestic Chinese market to Thomas Cook.
In recent months, Thomas Cook has fielded varying degrees in parts or all of its airline, its northern European business, and its tour operator.
Neset Kockar, a Turkish travel industry executive, has also taken an 8% stake in the group and signalled that he wants to play a role in the outcome of the rescue talks.
Credit rating agencies have downgraded Thomas Cook in the wake of a £1.5bn half-year loss.
The company has become embroiled in an increasingly frantic bid to shore up confidence among consumers and lenders.
Thomas Cook declined to comment.