Doubts surfaced over the future of Thomas Cook after the tour operator's share price nosedived by three-quarters following an admission it was close to breaching banking covenants.
UNITED KINGDOM (ITN) - Thomas Cook <TCG.L> asked lenders to come to its rescue for the second time in five weeks, sending shares in one of the world's oldest travel operators into freefall on Tuesday (November 22) as it warned of a possible default.
Analysts said the move threw into question the future of the 170-year-old firm, which provides holidays for 19 million customers each year and employs 30,000 staff.
The company has been hit hard by tough trading conditions, especially in Britain, where its core customer base of families with young children has been particularly affected by tough economic conditions.
It was also hit by unrest in popular destinations such as Egypt, Tunisia and Morocco.
Shares in Europe's second-biggest travel firm by holidays sold, were down 75 percent at 10.4 pence by 1605 GMT, taking total losses since the start of the year to 95 percent and leaving the group worth around 100 million pounds.
In debt markets, Thomas Cook's 300 million pound and 400 million euro bonds were trading at less than half of face value while its 150 million and 850 million pound credit facilities were being quoted at 60-65 percent of face value and looked set to drop further, according to traders.
Thomas Cook, whose chief executive quit in August, said trading had continued to decline in recent weeks with the crisis in the euro zone exacerbating an already weak holiday market.
Acting Chief Executive Sam Weihagen said he did not believe the company's future was under threat but that it was dealing with extraordinary circumstances.
"These are exceptional times and that is why we are in negotiation with our banks to make sure that we get an exceptional, if you want, cushion to protect our customers should trading deteriorate," he said.
Thomas Cook also delayed the publication of its final results, due on Thursday, until discussions with its banks have been concluded.
"As a result of deterioration of trading in some areas of the business in the current quarter, and of its cash and liquidity position since its year end, the company is in discussions with its principal lending banks with regard to its facilities during the seasonal low period of cash in the business," Thomas Cook said. "While the company remains in compliance with its financing covenants, it also intends to seek agreement from its lending banks to adjustments that will improve its resilience if trading conditions remain difficult," it said.
Finance director Paul Hollingworth said there was a risk the company could breach a key test of its financial health due in December. He said the company was looking to borrow around 100 million pounds from its 17-stong banking syndicate. That is in addition to the 100 million pounds short-term credit line Thomas Cook agreed with its banks following talks in October.