Thomas Cook Plc's battered shares sank almost 10 per cent on Thursday after the UK travel company's debt rating was cut to a level indicating default is a real possibility.
The stock fell amid fresh questions about whether the world's oldest travel agency can to turn itself around. Earlier, both S&P Global Ratings and Fitch Ratings cut the company's credit score deeper into junk territory, citing weak trading and high levels of indebtedness. Earnings may continue to deteriorate and the company's debt pile could rise to an "unsustainable" level, S&P analysts said, putting the rating at CCC+.
The lower credit score adds to the woes of a company whose shares have dropped 75 per cent in the past six months as it grapples with a tough business environment for the European travel industry, especially for airlines. A glut of capacity, stuttering economic growth and high fuel prices have led Deutsche Lufthansa AG to freeze expansion at its discount arm and Ryanair Holdings Plc to warn profit may fall further this fiscal year.
Ryanair Holdings Chief Executive Officer Michael O'Leary on Monday referred to Thomas Cook's airline, which is up for sale, as a "dog" which is worth little beyond the value of its airport landing slots.
The travel agent last week posted a 1.1 billion-pound ($1.4 billion) writedown at a UK arm hurt by uncertainty over the outcome of Brexit and said it expects another tough summer. It's looking to raise cash by selling airline operations and got conditional approval from lenders for a 300 million-pound loan to help it get through next winter.
Later, Thomas Cook received a preliminary offer from private-equity firm Triton Partners for its Scandinavian arm. The travel company is evaluating the "highly preliminary and unsolicited" offer for its tour operator and airline business in Norway, Sweden, Finland and Denmark, according to a statement. Thomas Cook also said it is considering multiple bids for either parts or the whole of its airline operation.
After this, Thomas Cook shares recovered. A sale of businesses could give the travel agency some breathing room.