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Thomas Cooks sinks on debt concerns

Despite no apparent positive news to boost investor appetite, it appeared markets were higher this morning as a result of bargain hunting following six preceding days of losses. Positive indices were witnessed across Europe even as yields at another Spanish debt auction hit frightening levels. The average yield on the three-month debt was 5%, more than double the 2.3% paid only last month.

Some welcome news for the UK economy came in the form of an Office for National Statistics announcement which showed a narrowing budget deficit in October. Net borrowing, excluding one off support for banks, fell from £7.7 billion last year to £6.5 billion presently, suggesting the government is on track to meet its deficit reduction targets.

Thomas Cook shares lost a dramatic 75% today following a deferral of the FTSE 350 company’s full year results. The accompanying announcement stated that the group was in discussions with its creditors regarding increasing its debt facility to give it sufficient headroom over December so as not to breach its banking covenants. This came despite an agreement last month in which it had arranged a further £100m of credit taking its net debt to £900m, and raised questions as to the future survival of the travel operator. The group has suffered from disruption in the Middle East and North Africa with Tunisia and Egypt typical holiday destinations for the French and Russians respectively, the latter also frequent travellers to Thailand which has experienced serious flooding in recent months.

Sentiment took a negative turn around midday as US third quarter GDP was revised down from an annualised 2.5% to 2.0%, lower than expected as analysts were forecasting no revision. The news sent US indices into negative territory and caused the FTSE 100 to lose its gains. The UK’s blue chip index finished 0.3% lower 5207, extending its negative trend into a seventh day.

This was posted in Bdaily's Members' News section by John Dance .