City warms to news of Thomas Cook debt deal and bid talks

On Monday, while the markets were closed, the travel operator confirmed it was in “advanced discussions” with lenders, including Royal Bank of Scotland and Barclays, over a package expected to extend the maturity of its loans to 2015.

Reports emerged yesterday that three bidders were interested in snapping up its India-based travel agency – US venture capital firms Carlyle Group and TA Associates, as well as a third un-named contender.

The travel firm has been suffering since November, when it admitted the impact of the economic slowdown in western Europe and the Arab Spring uprisings were having on its trading, forcing it to go cap in hand to its lenders.

Thomas Cook shares tumbled below 10p at the end of last year but last night closed up 13.4 per cent at 23.25p following confirmation of talks with the banks over its £1.2 billion debt pile.

But the deal is expected to come at a price as the banking syndicate is expected to demand higher interest charges, more one-off fees and a 5 per cent share stake.

The group is also exploring the sale and leaseback of aircraft, as well as offloading Thomas Cook India. Sale of the Indian business could raise £120 million, while it is expected a deal to sell up to 20 aircraft could raise at least £150m, pushing total proceeds from disposals to £450m. Analysts at Investec maintained the broker’s “buy” recommendation and 30p target price.

But Simon French, of stockbroker Panmure Gordon, remains unconvinced and has kept his “sell” rating on the stock, as well as a 10p target price. “The key issue is that, even after these steps, the group has too much debt and too little operating cashflow,” he said.

Talks involving the banks and interim chief executive Sam Weihagen are likely to be completed in the coming weeks, with a strategic review due to be announced by the time of its interim results before the end of May.

Weihagen has been interim chief executive since the abrupt exit of Manny Fontenla-Novoa last August. Frank Meysman, who became chairman in October, had said that he hoped to name a replacement by the end of March, but there has been no announcement.

The sale of the Indian unit could be announced as early as the first week of June.

Thomas Cook said in February that it planned to sell down its 77.1 per cent stake in the business, which provides foreign exchange and travel services in 70 Indian cities across 153 owned locations. The company employs 2,700 people across its Indian offices.

Carlyle has made a number of investments in global travel services, including CVC Brasil Operadora e Agência de Viagens, Latin America’s largest tour operator in 2010 and Worldstrides, a student travel specialist in 2011.