Thomas Cook strikes bank deal, gets winter buffer

LONDON Fri Oct 21, 2011 10:35am BST

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LONDON (Reuters) - Thomas Cook (TCG.L) has struck a deal with its banks, sending battered shares in the holiday group soaring after a string of profit warnings that cost the company its chief executive and shareholders their dividend.

Europe's second biggest tour operator still has a lot to do after losing three quarters of its market value since mid-January, analysts cautioned, noting that it may yet have to tap shareholders for fresh funds.

Thomas Cook said on Friday it had amended the terms of existing bank facilities and agreed a new 100 million pounds short-term credit line to tide it over during December when trading is traditionally quiet.

"We are pleased to have the full support of our banking group in amending the financial covenants so as to provide greater financial flexibility, particularly around the seasonal cash low point at the end of December," Chief Financial Officer Paul Hollingworth said in a statement.

Shares in the group were up 18 percent at 53.7 pence by 0905 GMT. The surge took the stock to levels last seen in mid-August but left it well short of a year high of 206.8 pence.

Peel Hunt analyst Nick Batram said the deal had allayed fears Thomas Cook would ask shareholders for fresh funds and described the group as "one of the most interesting turnaround prospects in the sector" but pointed to Britain's weak consumer environment as a major hurdle still facing the group.

"Focus will now return to the job of improving profitability against a backdrop of deteriorating consumer confidence," Batram wrote in a note to clients. "Definitely a positive step forward, but there is still a lot of hard work ahead."

Thomas Cook scrapped its dividend last month as part of efforts to cut its debt substantially over the next 2 to 3 years.

The company said that under the deal the terms of an existing 150 million pound loan and a 850 million pound credit facility maturing in May 2014 had been amended, setting less onerous caps on how much debt and debt-related charges it can carry relative to earnings.

In return for the easing in lending terms, Thomas Cook has agreed to restrictions on acquisitions, a prohibition on dividends and to use the proceeds from any disposals to reduce its loans.

The interest margin it pays on its borrowings will also increase by half a percentage point.

"It's a positive development which addresses a widely-held investor concern," Charles Stanley analyst Douglas McNeill wrote.

As well as needing to find a new chief executive, McNeill predicted that an exit from its Indian business and tapping shareholders for funds via a rights issue may also still be in the pipeline.

(Editing by Kate Holton and Mike Nesbit)

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