02 December 2020 by jbchevrel
TUI A.G., Europe’s largest tour operator, is in all XOver indices since s03 (except s25). Today TUI 5y CDS tightened by -8% to close at 2% upfront and 500bp running, equivalent to 550bp spread. For context, Before TUI got its 1st bailout in April, TUI CDS briefly reached 46%. It then tightened to just 6% in summer, widened back in H2-SEP & OCT as the winter outlook started looking grimmer than market participants had previously expected. After reaching back 35% in early Nov (when AF 5y was 22% and XO34 was 380bp), TUI 5y CDS tightened back to low 10s during the bullish month of November, as new talks with the German government (for €1.5-1.8B more) added to vaccine news. Today it tightened a final leg to +2% as it was reported that they reached agreement with private investors, banks and the government on the high-watermark €1.8B financing (€0.5B capital increase with subscription rights, €0.4B+ silent participation by WSF without a participation in TUI losses which can be converted into shares at €1/sh capped at 25% plus one share + €0.3B silent participation with participation in losses, €0.4B state guarantee, €0.2B additional credit facility from government-gteed agency KfW). The cumulated size of the packages YTD is close to €5B. They had €2.5B debt already, mostly €2.0B due October 2021. TUI is valued at more than €3B although a restructuring might lie further down the road, especially if EBITDA takes long o recover to pre-COVID levels. Interestingly, cash from operating activities was only once superior to €1B in the five pre-COVID years (15-19) and although today’s steepening of the 1s5s is surely justified by the additional liquidity, it is possible that we see a pull-back wider next year, as it becomes clearer that the conditions for travelling do not allow TUI to generate cash at a quick enough pace to honor its commitments in due course. Of course, a counter-argument to this is the ( E ) word. Today the existing KfW facility was ( E ) xtended until July 2022, so why not extend until the 12th of Never?