S&P cuts Thomas Cook’s rating

Thomas Cook has rating cut by Standard and Poor’s

Thomas Cook investors were dealt a blow after Standard & Poor’s downgraded the holiday company’s credit rating and warned that it could have to push through a debt restructuring given its “unsustainable” capital position.

By Jonathan Sibun
5:14PM BST 06 Jul 2012

The hard-hit tour operator – which narrowly avoided collapse late last year – “continues to face significant operating challenges” S&P warned.

Thomas Cook shares fell 0.19 to 15.06p as S&P cut the company’s credit rating from B to B-, with a negative outlook, and said the tour operator would find it difficult to stabilise cash flows.

“Thomas Cook’s capital structure could become unsustainable over the medium to long term,” S&P said. “Our negative outlook also takes into account the increasing risk that the group could possibly undertake credit-dilutive debt restructuring measures.” That backdrop could lead the group to break banking covenants “as soon as mid-2013”, it added.

The leisure group has made considerable strides since securing a £200m bail-out from its banks in November but is still labouring under debts of almost £900m. The tour operator agreed a £1.4bn refinancing in May, winning it an extra two years of breathing space on its loans.

S&P said while it regarded the refinancing as positive, a lack of visibility on profits and cash flow generation “represents a key concern”. S&P added: “This could jeopardise any refinancing attempt.”

A spokesman for Thomas Cook said the S&P report “largely relates to issues that are already well understood by the market. We have a new longer-term banking agreement and are well under way in implementing a turnaround across our underperforming businesses.”

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