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All About Control

23 April 2019 by jbchevrel

The 178-year-old travel agent Thomas Cook Group PLC (TCGLN), which owns resorts, travel agencies, tour operators, car hire agencies, and plane/ship fleet, was the clear outperformer today in Euro HY space. This is after Sky reported potential bidders have approached TCGLN about all or part of their businesses. In particular, the HK-based conglomerate Fosun, TCGLN biggest shareholder, has expressed interest. Despite TCGLN having made clear they look to sell their airline part (since FEB), EU law prevents EU-based airlines from being owned by non-EU. Therefore, LHAGR still seems a potential candidate on that arm, although this interest may be partial (that headline popped out post close: *LUFTHANSA INTEREST IN THOMAS COOK IS SAID LIMITED TO LONG-HAUL). But it’s been the airline that performed the best recently, as opposed to the tour-operator. TCGLN 5y CDS is tighter by c240bp, cash jumped 4/4.5%, across € 22s and 23s, and the stock soared c18%. There is potential upside from a change of control at 101 for both the 22s (closed 77) and 23s (closed 67) if a takeover happens. On top of tightening, the CDS curve de-inverted by c145bp in the 1y-5y segment, still decently inverted (more than 300bp) in that portion of the curve. Despite today’s move, we are roughly flat in APR, as last week was reported that anecdotally one of TCGLN bank lenders was unable to sell £25M exposure at 30% discount… Although the M&A news flow will likely dominate the price action going forward, more colour on the micro developments may come on May 16 H1 results. Beyond those, macro risks such as a potential UK consumer-hitting hard Brexit and the deterioration of relationships between Turkey (big package holiday destination) and the US still remain, without forgetting that last year, it was the unusually warm summer in Europe, and particularly in the UK, which had contributed to take the 5y CDS from c250bp to c1,250bp.