Despite a campaign of positivity by Thomas Cook on social media, the company filed for bankruptcy protection in the United States yesterday, triggering a potentially damaging meeting tomorrow.
On Thursday 19th September at noon London time, the Credit Derivatives Determination Committees will meet to discuss Thomas Cook’s filing in New York yesterday for bankruptcy protection. The purpose of that meeting is to determine the nature and depth of what it describes as a “credit event”.
On the CDDC website, it states “The Eligible Market Participant that submitted the question noted that Thomas Cook has filed for Chapter 15 bankruptcy protection in the U.S. as part of a broader debt restructuring.”
The eligible market participant in question has not been identified, but is assumed to be one of the large institutional bondholders or hedge funds.
The CDDC’s role is to “apply the definitions within credit default swap documentation to specific cases, and make factual, evidence-based determinations on Credit Events and other issues.”
In other words, tomorrow the CDDC will determine, and report, exactly how precarious the position of Thomas Cook is, whether the company remains solvent, and what its outlook is.
I won’t go into detail on the ins and outs of credit default swaps but they are effectively an insurance policy that is taken out by the bondholders of a company, protecting it in the event of that company failing.
The significance of this development following the Chapter 15 bankruptcy protection filing in New York, is that the CDDC will determine where bondholders currently stand, and it is the bondholders that are currently the sticking point between Thomas Cook securing Chinese investment or running out of money.
I can’t see it being favourable for Thomas Cook at that meeting. The Chapter 15 bankruptcy filing in New York effectively blocks some of the bondholders from derailing the sale or re-organisation of the company by paying them out on the basis of the company being in default, thus triggering the CDDC meeting.
If the CDDC meeting gives a damning verdict on the company’s position and liquidity (which it almost certainly will), it will turn out to be a very tough end of the week for the company on the European markets – if its shares aren’t suspended from trading by then.
Meanwhile, as all that financial jiggery is going on in New York City, the words “bankruptcy” and “default” are being widely associated with Thomas Cook. It really is looking like a losing battle now for the company to prop up investor confidence when those two words are associated with it.
I fear it will be even worse on the High Street, where if a company needed it most, it needs customers buying holidays in the droves and with full confidence. That confidence is ebbing away, and with it, so will bookings, thus revenue spirals lower and lower by the day.
Since the start of September, through to lunchtime today, Thomas Cook’s share price (LON:TCG) is down a third, from 6.00 to 4.42.
The next two weeks are critical for the future of the famous Thomas Cook travel brand.