Thomas Cook Group has filed for Chapter 15 bankruptcy protection in the United States. The news, which was initially reported by Bloomberg, comes as the group is undergoing recapitalization efforts. Here, we explore the bankruptcy filings, the restructuring, and the group’s financials.
The New York Filing
On the 17th of September, Thomas Cook Group Plc, owners of tour operators, hotels, and airlines such as Thomas Cook Airlines UK, Scandinavia, and Condor, filed for Ch. 15 Bankruptcy protection in New York.
Ch.15 is a rather unique procedure. According to the U.S. Courts “the purpose of Chapter 15, and the Model Law on which it is based, is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants, and other parties of interest involving more than one country”.
Additionally, Bloomberg reports that the law “shields foreign companies from lawsuits by U.S. creditors while they reorganize in another country.”
Indeed, on the 28th of August, the Group updated shareholders on a proposed recapitalization plan.
According to a press release, the Hong Kong / Shanghai Fosun Tourism Group is set to inject £450 million of new capital into the company. In turn, Fousn is set to acquire 75% of the Group Tour operators and 25% of the Group’s airlines.
Debt-holders and lending banks, on the other hand, would also inject an additional £450 million, in exchange for 75% of the airlines and 25% of the tour operations. The £900 million recapitalization plan has, however, become complicated and controversial.
A group of hedge funds have allegedly purchased credit-default swaps (CDS) against Thomas Cook. CDSs act as a sort of financial life-insurance, protecting investors against the risk that a company does not repay its debts.
As reported by Bloomberg, these funds could potentially seek to block the Group’s restructuring plans. Fearing that “the conversion into equity swap that’s central to the restructuring may leave their holdings of credit-default-swaps with no debt to insure.”
The Chapter 15 filing could thus trigger a payout on the CDSs before key bondholder meetings on the 27th and 30th of September.
The Thomas Cook Group has seen its financials challenged in the past year. According to financial reports, the 178-year-old company lost £1.456bn before taxes in H1 2019. The company blamed challenging trading conditions in tour operations, heatwaves, and political uncertainty for the results.
“The first six months of this year have been characterised by an uncertain consumer environment across all our markets. The prolonged heatwave last summer and high prices in the Canaries reduced customer demand for winter sun, particularly in the Nordic region, while there is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer.” – Peter Fankhauser, Chief Executive of Thomas Cook, March 2019
On the 15th of September, the Times of London reported that the UK’s Civil Aviation Authority was on alert over the financial health of the tour operator and airline. This past May, UK politicians mulled the idea of an ‘airline bankruptcy tax’.
Thomas Cook declined to comment on the Chapter 15 filing.