Thomas Cook’s Liquidation Step by Step And What Happens Next
Thomas Cook’s Liquidation Step by Step And What Happens Next
(Bloomberg) -- Thomas Cook Group Plc filed for compulsory liquidation in the early hours of Monday after last-ditch rescue talks failed. The company that invented the package holiday ceased to operate overnight, with all of its flights and bookings canceled.
What happens in liquidation?
Thomas Cook will now be handed over to administrators who will seek to sell what they can to pay off creditors who owed about 1.9 billion pounds ($2.4 billion).
AlixPartners, a global consultancy firm, will oversee the liquidation and KPMG will help manage some Thomas Cook subsidiaries. Shareholders will be completely wiped out, while creditors will recover a fraction of their original investment from proceeds of asset sales. This process can be spread across multiple distributions and take years.
In a report drafted before Thomas Cook filed for liquidation, AlixPartners said bondholders could get back between 2.2% and 6.3%. Lenders may get as much as 16.7% back on a revolving credit facility.
Will it survive in some form?
Unlikely. A compulsory liquidation usually means the company ceases trading, according to Emma Shipp, partner at law firm Hewitsons. Rivals may snap up parts of the business, thereby ensuring their survival, but there’s little sign of any potential buyers.
“It may be that certain parts of the business will be bought out in which case the employment contracts of staff working in that area will be transferred with the business but that depends on buyers coming forward very quickly and there seems no indication of that,” she said.
Other high profile liquidations?
Thomas Cook is the latest European travel company to file for administration or go through liquidation in the past decade. In the airline sector, Air Berlin Plc, Germany’s second-largest carrier, filed for administration in 2017. Iceland’s Wow Air closed down in November after a failed merger with Icelandair, and French airline Aigle Azur will cease business at the end of the month.
Other high profile cases involved Monarch Airlines in October 2017 and more recently, construction company Carillion, which collapsed in 2018.
Recent Large U.K. Liquidations
| Company | Debt |
|---|---|
| Thomas Cook (Sept. 2019) | 1.9 billion pounds |
| Carillion (Jan. 2018) | 1.6 billion pounds |
| BHS (June 2016) | 1.3 billion pounds |
| British Steel (May 2019) | 880 million pounds |
| Monarch Airlines (Oct. 2017) | 373 million pounds |
How did we get here?
Thomas Cook liquidation ends months of talks that had led to an agreed $1.1 billion rescue led by Fosun Tourism Group. The plan involved injecting new capital and swapping debt for shares in the company which would have handed majority control of the tourism arm to Fosun. Creditors would have taken over the airline unit. Negotiations collapsed after Thomas Cook was unable to find backers for an additional 200 million pound credit line requested last week by its largest banks. The U.K. government turned down a request for financial help but will have to foot the bill for bringing home more than 150,000 Thomas Cook customers stranded overseas.
Prime Minister Boris Johnson defended the decision to refuse the bailout that he said had been requested, to the tune of 150 million pounds. ”That’s a lot of taxpayers’ money,” he told reporters. ”It sets a moral hazard.”
That repatriation is twice the size of that arranged for customers of Monarch Airlines, a carrier which went insolvent two years ago, which cost about 50 million pounds, the government said.
Stocks, bonds and default swaps
Thomas Cook’s collapse wipes out shareholders. Its shares were suspended after it entered into liquidation. Through to the close of trading on Friday, the shares had fallen 89% in 2019, the worst-performing stock in the FTSE All-Share in the year-to-date. The company’s euro bonds lost more than two-thirds of their value on Monday to trade and now they will be part of the claims creditor will try to recoup during liquidation.
For hedge funds and other investors who bought credit default swaps insuring exposure to the company’s debt against default, the situation is different. The liquidation is likely to trigger the payout on their holdings, which may amount to as much as $250 million.
--With assistance from Katie Linsell.
To contact the reporters on this story: Luca Casiraghi in London at lcasiraghi@bloomberg.net;Irene García Pérez in London at igarciaperez@bloomberg.net
To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Chris Vellacott
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