Thomas Cook Plans $2.4 Billion Refinancing With Bond Sale

Thomas Cook Group Plc, the 172-year-old tour operator that required an emergency loan 18 months ago, plans to raise 1.6 billion pounds ($2.4 billion) to restructure its borrowings as it cuts jobs and closes stores to pare costs.

Thomas Cook shares rose 15 percent after the London-based company said it had negotiated 691 million pounds in loans and would raise 425 million pounds in a rights offer and share placement and 525 million euros ($675 million) from a bond sale.

The world’s oldest holiday company has begun a 90-day consultation to cut 2,500 jobs, or 16 percent of the total, as it closes unprofitable shops and consolidates airline operations under a three-year recovery plan. The financial restructuring is fully underwritten and will reduce the proportion of debt on its balance sheet and extend the maturity of existing arrangements while paving the way for a return to dividend payments.

“This successful synchronization of a new bank facility, new bond issue and new equity issue, which reduces leverage and strengthens our liquidity profile, highlights a new-found confidence,” Chief Financial Officer Michael Healy said.

Yield Boost

The yield investors demand to hold Thomas Cook’s existing euro bonds fell to a record 3 percent after reaching 45 percent in August, data compiled by Bloomberg shows.

Standard & Poor’s and Fitch Ratings both said they envisage a one-level upgrade in Thomas Cook’s “B-” credit rating -- six levels below investment grade -- to “B” after completion of the company’s refinancing. S&P said in a statement that the move should “significantly improve” liquidity.

Shares of Thomas Cook were trading almost 14 percent higher at 164.50 pence as of 1:32 p.m. in London after earlier reaching 166.70 pence. The stock has more than tripled in price this year, giving a market value of 1.5 billion pounds.

Thomas Cook will place 87 million shares at 137 pence apiece to generate 120 million pounds and raise a further 305 million pounds through a two-for-five rights offer of 401 million new ordinary shares. Both steps require approval by investors at their annual meeting on June 3, it said.

The new bonds are due to mature in 2020, Thomas Cook said, while the loans include a 300 million-pound revolving credit. Borrowing costs are little changed at around 8 percent and financing fees are below 5 percent.

Dividend Option

The restructuring will help put Thomas Cook in a position to consider resuming dividend payouts following completion of the turnaround strategy in 2015, Chief Executive Office Harriet Green said on a conference call.

“The rights and refinancing considerably de-risks the business in our view,” Wyn Ellis, an analyst at Numis Securities in London with a “hold” rating on the stock said in a note.

The debt restructuring was announced as Thomas Cook cut its loss before tax and interest for the first half ended March 31 to 197.5 million pounds from 248.1 million pounds a year earlier, even as sales fell 2.7 percent to 3.22 billion pounds. Net debt fell by 175.4 million pounds to 1.2 billion pounds.

Summer bookings are “developing well,” according to the company, which left its full-year guidance for improved profitability unchanged while lifting its savings target by 40 million pounds to 390 million.

Thomas Cook is continuing to review its assets, the CEO said, and is stepping up efforts to sell its share in National Air Traffic Services Ltd., Britain’s airspace controller.

Credit Suisse and Gleacher Shacklock are joint sponsors of the capital refinancing and are acting as joint financial advisers with Short Partners.

Credit Suisse is the lone global coordinator and joint corporate broker with Jefferies Hoare Govett for the rights offer. Members of the banking syndicate that are providing the new facilities will be joint bookrunners for the bond issue.

(Updates with Fitch upgrade in sixth paragraph.)
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