British travel operator Thomas Cook Group has said it has agreed the main terms of a rescue package that will see Hong Kong's Fosun Tourism take over its tour operations, and creditor banks and bondholders acquire its airline.
The world's oldest travel company, and pioneer of the package tour, has struggled with intense competition in popular destinations, high debt levels and an unusually hot summer in 2018 which reduced its last-minute bookings.
The debt burden meant the company had to sell three million holidays a year just to pay the interest, it said last month.
Thomas Cook also said in July that it was working to secure new investment from shareholder Fosun Tourism which would see the Hong Kong group take control of the business, along with its lenders, whose debt would be converted into equity.
The terms, which were announced on Wednesday August 28, will see Fosun, whose Chinese parent owns all-inclusive holiday firm Club Med, contribute £450 million of new money in return for at least 75% of the tour operator business and 25% of the group's airline.
Thomas Cook's lending banks and bondholders will stump up a further £450 million and convert their existing debt to equity, giving them in total about 75% of the airline and up to 25% in the tour operator business, the group said.
The recapitalisation plan, which is subject to a legally binding agreement between the parties, will result in a significant dilution in existing Thomas Cook shareholders' interests, the company said, but it had decided that it was the best way to secure the future of the group for all its stakeholders.
AJ Bell investment director Russ Mould said shareholders in the troubled travel company may have to accept that their investment could be worthless.
"Investors are simply trying to cash out and crystallise any value left in their investment before the refinancing, for fear there could be nothing left if they wait," he said.
A More Radical Solution
Earlier this year, Thomas Cook said it was exploring a sale of its airline business, which consists of German carrier Condor and UK, Spanish and Scandinavian operations, but a further profit warning in May left management seeking a more radical solution to save the business.
Fosun International Details
Fosun Tourism's parent, Fosun International, was co-founded by billionaire Guo Guangchang and is one of China's biggest conglomerates. It has spent billions of dollars over the past decade on healthcare, tourism and fashion companies in the United States and Europe.
As well as Club Med, Fosun International also owns English Premier League soccer team Wolverhampton Wanderers FC.
Fosun said earlier this year that it would adopt an asset-light strategy and run Club Med resorts it plans to launch in China and other countries under management contracts.