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German Holiday Firm TUI Said to Near $2 Billion in State Aid

German Holiday Firm TUI Said to Near $2 Billion in State Aid

(Bloomberg) -- TUI AG, the world’s biggest tour operator, is close to securing nearly 2 billion euros ($2.2 billion) in government aid in what’s seen as a litmus test for Germany’s pledge to rescue businesses ravaged by the coronavirus pandemic.

The company and its adviser reached an agreement with Germany’s state-owned KfW development bank on the terms of loans earlier this week, said the people, who asked not to be identified because discussions are private. That financing package is now with TUI’s lending banks, which are expected to sign off in the coming days, they said.

Under the preliminary agreement, KfW would provide about 80% of the loans, with the commercial banks shouldering the remaining 20% as part of the state bank’s special program, said the people. Negotiations are ongoing and the exact structure and timing could still change, the people said.

A TUI spokesman said the Hanover-based travel giant is in “constructive talks” regarding aid, while declining to provide details. TUI, which has so far scrapped all vacations through the end of April, said on March 15 it would apply for state guarantees following a collapse in sales.

TUI shares traded 2.8% higher at 363.9 pence as of 12:31 p.m. in London, where they have their main listing.

Governments in Europe and North America are crystallizing plans for bailouts as they become new epicenters for the virus. The U.S. Senate has passed a $2 trillion rescue plan that includes a $61 billion lifeline for struggling airlines and contractors. In the U.K., carriers will have to request bespoke aid beyond 330 billion pounds ($390 billion) of general loan guarantees to business.

Germany this week signed off on taking on 156 billion euros of new debt as part of an unprecedented package to cushion economic fallout from the virus. It has also agreed to set up a 600 billion-euro fund to provide companies with loans and guarantees as well as buy stakes in stricken businesses.

The package-holiday business in which TUI competes is highly seasonal, with northern hemisphere operators typically recording losses between October and March as they buy hotel capacity, and then generating a profit in the summer. The Covid-19 outbreak could mean the earnings peak is wiped out this year.

TUI’s shares have lost almost two-thirds of their value since the start of the year, cutting its market value to 2.3 billion euros. Its credit rating is respectively five and six levels below investment grade at Moody’s Investors Service and S&P Global Ratings, while 300 million euros of bonds due in October 2021 are indicated at 66 cents on the euro, according to data compiled by Bloomberg.

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