On 21 March 2019, we initiated our short recommendation:
‘TCGLN 3.875 currently trading at 67.5 have scope to fall further to 45 cash price…’
On 4 May 2019, when bonds fell to 55 cash price, we said:
‘…. we believe that the bonds have further to fall and maintain the short.’
Our rationale was that there was much uncertainty regarding the nature of the disposal of TCGLN’s airline business. Further, the need for TCGLN to retain stronger liquidity meant that any cash proceeds from a sale of the airline business would rule out the possibility of bonds being taken out. This was confirmed when TCGLN was forced to get a £300M extension from lenders to boost its liquidity position on 5 May 2019. Further, the sale of TCGLN’s £55m RCF (£650m due in 2022) was sold for a price of 60 the previous day (4 May 2019).
TCGLN (B-) reported dire H1 2019 results on 16th May 2019 with a £1.456bn loss for the first half the year (compared to -£303m for H1 2018). There were expressions of interest from Virgin Atlantic and Lufthansa for TCGLN’s airline business, however these are likely to be for parts of the airline business and the nature of the bids are unknown.
TCGLN 3.875% 2023s fell to €45 cash price according to Bloomberg, exactly in line with what we predicted. Therefore, we close the trade, with a profit of +22.5 points.
|Issuer||Cpn||Maturity||S&P||Deal Size||Latest Px||YTW%||Z-Spread|
|THOMAS COOK GROUP PLC||6.250||15/06/2022||B||€750m||€48||36.888||3419bp|
|THOMAS COOK FINANCE 2||3.875||15/07/2023||B||€400m||€45||26.932||2545bp|
|THOMAS COOK 5Y CDS||12/20/2023||49.50 (upfront)||3610bp|