Thomas Cook shares collapse on debt update

Shares in holiday operator Thomas Cook have plunged by more than half upon the market opening this morning after a shock announcement warning that its trading is so bad it is struggling to meet its borrowing commitments.

The travel group said it had to delay the announcement of its full-year results while it talks to its banks.

Thomas Cook said it was discussing its debt facilities with its lenders over easing some covenants to get it through the next few weeks, a “seasonal low period of cash in the business”.

The shock announcement follows a string of profit warnings in the past year as unrest in its key markets of north Africa, and a slowdown in trade in the UK, have hurt its business.

“Thomas Cook Group plc announces that 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,” it said.

The travel specialist’s chief executive, Manny Fontenla-Novoa, resigned in August after a third profit warning in under a year. It is now expected to close 200 of its travel agency shops to cope with the downturn in its business.

Thomas Cook said its cash and liquidity position had deteriorated since the end of its financial year on September 30.

The company said it was still meeting its loan covenants but was seeking “agreement from its lending banks to adjustments that will improve its resilience if trading conditions remain difficult.”

It added that it still expects to report a headline operating profit for the year ended 30 September 2011 broadly in line with previous guidance.