Thomas Cook Shares, Bonds Rebound as It Damps Rights-Offer Talk

(Bloomberg) -- Thomas Cook Group Plc shares snapped a six-day losing streak with the biggest gain in seven years after the U.K. travel firm allayed concerns that it needs to raise equity in a move that would dilute its stock.

Cook is meeting with key investors to assure them that it has no immediate plans for a rights issue, people with knowledge of the briefings told Bloomberg. The shares surged 46 percent Wednesday, ending a rout that erased hundreds of millions of pounds in market value, while its bonds also turned a corner.

Thomas Cook arranged the talks after a profit slump and dividend suspension triggered a mass selloff and spurred concern that it could default on debt. It has met representatives of Invesco Ltd. and Jupiter Fund Management, and Standard Life Aberdeen Plc and Schroders Plc will be briefed in coming days, said the people, who asked not be named as the consultations are private.

The central message from Thomas Cook is that the London-based company won’t undertake a rights offer, the people said. Investors have urged the firm to take a more cautious approach to planning hotel capacity next year after this summer’s heatwave depressed demand and prices for its package holidays.

“The market has taken fright, but from what we see, the fundamentals remain robust,” Stephen Anness, global equities fund manager at Invesco, Cook’s No. 1 shareholder, said in a statement to Bloomberg. “From our conversations with the company, the balance sheet and liquidity is intact.”

Shares of Thomas Cook gained the most since Nov. 28, 2011, and were priced 37 percent higher at 31.12 pence as of 1:09 p.m. in London, giving a market capitalization of 474 million pounds ($605 million).

Cook’s 400 million euros of notes due July 2023 advanced 3 cents on the euro to 70 cents, while its 750 million euros of notes due in June 2022 posted the same gain to 74 cents, according to data compiled by Bloomberg.

Read More: Thomas Cook’s Debt Swaps Show Default Risk as Shares Plummet

Thomas Cook, Standard Life Aberdeen, Jupiter and Schroders declined to comment. Invesco has a 14 percent stake in the 170-year-old business, with Standard Life Aberdeen the second-largest investor.

The tour operator’s Chairman Frank Meysman appeared to back a recovery by purchasing 373,000 shares on Tuesday at an aggregate price of 21.57 pence apiece, according to a filing.

There was also some relief from a Jefferies Financial Group note in which analyst Rebecca Lane reiterated her buy recommendation on the stock, saying that while there are concerns about Cook’s leverage, it can avoid a capital raise, making the current “distressed” share price an attractive entry point.

The company could ease its position further by selling a stake in its airline arm, which may be worth 1.1 billion pounds, Lane wrote.

Thomas Cook has still lost 36 percent of its value since warning last week that 2018 earnings had missed targets, while its bonds fell to record lows on Wednesday before rebounding. Reassuring investors is complicated by the fact that debt covenants aren’t public, though the company’s lenders have agreed to provide waivers until at least the fiscal second quarter.

Unlike rival TUI AG, which has a stronger balance sheet after disposals worth about 2 billion euros ($2.3 billion) in recent years, Thomas Cook owns few of its hotels and planes. That makes it more vulnerable to shocks like the hot summer that led would-be customers from lucrative markets including the U.K. and Scandinavia to holiday at home.

--With assistance from Katie Linsell.

To contact the reporters on this story: David Hellier in London at dhellier@bloomberg.net;Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Erhard Krasny at ekrasny@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Tom Lavell

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