Shares of Thomas Cook rose sharply on Monday, after the British tour operator confirmed that it had secured a £100-million extension to its borrowing facility.
Thomas Cook shares were up 22.4 per cent at 22.06 pence in London on Monday afternoon — a fraction of the £1.95 it was worth at the start of the year. The shares of Thomas Cook India Ltd, in which the parent holds 77.13 per cent stake, was up 9.6 per cent at Rs 41.50 on the BSE and 9.1 per cent at Rs 41.25 on the NSE.
Thomas Cook now has a £200 million facility, replacing the £100 million one it had secured in October. The banks have also agreed to relax the covenants on the facility. The new arrangement “significantly improves the robustness of the Group's financial position,” said the company in a statement on late on Friday.
Announcement & dip
Thomas Cook's share price plummeted last week, following the shock announcement that it would be going back to its banks for additional support, just a month after it had got a £100 million credit facility. It had followed a tumultuous year in which the company had given three profit warnings.
Analysts remain cautious in their assessment of the latest agreement. “What it doesn't do, of course, is address the structural issues in the company or the near-term consumer issues,” said Mr Simon French, an analyst at Panmure Gordon in London, who maintains a ‘sell' rating on the stock.
Strategic review
The company has said it plans to do a strategic review of its business.
Under the new agreement, Thomas Cook's 17 banks will have a right to acquire a 4.9 per cent stake in the company based on the average share price between this past Friday and Monday, any time before mid-May 2015. The interest on the loan will rise to five per cent over LIBOR a year, plus an additional half percentage point a quarter. The initial cost of the facility is £10 million, in addition to the £5 million it paid for the first extension agreement.
Thomas Cook also won't be able to issue new shares, acquire new businesses, and must limit capital expenditure, conditions that come on top of its previous agreement to suspend dividend and share buybacks.
The banks have relaxed the covenants, with the ratio of net debt to earnings before interest, tax, depreciation, amortisation and rent being allowed to stand at up to five times up till December, 4.75 times up to March, and 4.5 times beyond that.
Thomas Cook has blamed the Euro zone crisis, unrest in the West Asia and flooding in Thailand for its position, adding to pressure over the winter period, traditionally a cash low point in the year for the industry.
Business in France and Belgium, where trading is down nearly 20 per cent on last year, are its worst hit markets, while a joint venture in Russia has fared poorly.