4th May 2019

Recommendation: Short TCGLN

Recommendation

On the 21st March 2019, we recommended:

TCGLN 3.875 23 currently trading at 67.5 have scope to fall further to 45 cash price…’

Our rationale was that there was much uncertainty regarding the nature of the disposal of TCGLN’s airline business. Further, the need for TCGLN to retain stronger liquidity meant that any cash proceeds from a sale of the airline business would rule out the possibility of bonds being taken out. Therefore, TCGLN is likely to be a small, lower-margin, less diversified business facing increased competition.

The trade P&L stands at a profit of +12.5pts, however, we believe the bonds have further to fall and maintain the short.

Recent Developments

20 April 2019: Sky News reports that TCGLN ‘has been tentatively approached about a takeover of its tour operating unit or the entire company by several parties…’ EQT, KKR and Fosun (who already own 17% equity) rumoured to be interested.

3rd May 2019: S&P downgrades rating to B- (CW Negative) based on weak booking trends in Europe and the impact on cash flow and already weak liquidity position.

4th May 2019: £55m of TCGLN’s RCF (£650m due in 2022) was sold for a price of 60. Another bank is advertising £25m of RCF for sale at the same price.

5th May 2019: Sky News reports that TCGLN is seeking a £400M extension from lenders to boost its liquidity position. TCGLN said this was ‘to ensure we have both financial flexibility necessary to maintain an appropriate liquidity buffer through winter.’ As mentioned before, TCGLN has to maintain a liquidity buffer of £150-200m.


Upcoming Dates

7 May 2019: Expressions of interest into TCGLN’s airline business deadline.

16 May 2019: H1 2019 results

Issuer Cpn Maturity CCY S&P Deal Size Latest Px YTW Z-Spread
THOMAS COOK GROUP PLC 6.250 15/06/2022 EUR B 750,000,000 € 60.000 26.942 2546
THOMAS COOK FINANCE 2 3.875 15/07/2023 EUR B 400,000,000 € 55.000 20.634 1971
THOMAS COOK 5Y CDS 12/20/2023 EUR 31.00 (upfront) 1844

Ash Nadershahi

Ash completed two internships at Deutsche Bank and Credit Suisse after graduating from the University of Birmingham in 2008. In 2011 he joined BNP Paribas working on the investment grade credit desk before moving to Credit Agricole CIB focusing on European High Yield credit. In 2016 he was responsible for market-making high yield credit at CFE.