Holiday and airline group Thomas Cook’s shares climbed up to 45% on hopes that it would not need to issue new equity, although its bond prices extended their losses to record lows, amid deepening worries about the UK travel group’s debt.
Thomas Cook has been under pressure since late November when it cut its profit guidance and suspended its dividend, halving the value of its shares in just over a week.
The company was burned by the hot summer in northern Europe, which reduced demand for travel to southern European resorts. Some traders said fears that Thomas Cook would need to carry out a fundraising had receded, boosting the stock, although others disagreed, calling yesterday’s rise a “dead cat bounce, most probably”.
Although we acknowledge the risk, our central thesis is Thomas Cook can avoid a capital raise,” said Jefferies analyst Rebecca Lane.
That thesis was underpinned by Thomas Cook’s extended flexibility on bank covenants for early next year and its progress on profitability, as well as a possible stake sale in its airline and its lower debt compared with five years ago, said Lane.
However, Thomas Cook’s bonds hit a record low after credit rating agency Moody’s cut its rating on the company’s debt to B2 from B1.
Moody’s said the move reflected a deterioration of its credit metrics after the company’s profit warning last week and weakened liquidity.