Thomas Cook's new intermediate holdings

All,

Having done further work on TCG’s legal structure last week, we have come to the conclusion that under the current terms including Fosun, a restructuring will likely trigger CDS after all.

Intermediate holdings:

Originally, the thesis was that due to the ATOS license, participants would go to lengths to avoid administration. But as it turns out, not only is the PLC itself not a license holder, but the company has been preparing a split of the businesses for some time. Thus the license holding and other principal entities are now - since earlier this year - beneath two intermediate holdings - one for the tour operator and one for the airline. Having looked through the various OpCo balance sheets, it appears to us that a filing of the PLC (think pre-pack / one day) for administration should be possible without setting off cataclysmic events.

Shareholder approval:

By contrast, further work on the company’s shareholder composition - and in particular its development in recent weeks - suggests that the company will find it hard to identify a 50% majority for an EGM, let alone the 75% Special Resolution majority required to issue a massively dilutive amount of new shares without preemption rights. Going with the Ordinary Resolution at 50% and thus an issue with preemptive rights, we can only identify institutional holders - including Fosun - accounting for just over 30% - and shrinking.

So if Fosun and/or the creditors resolve that they would like to maintain a public listing, the company may try to save it by convening an EGM with a coercive offer and the threat of administration as the alternative, triggering 21 days of great uncertainty and only possible if ready to file for administration the morning after a failed vote. Otherwise it may not even bother.

No shareholder approval:

Without the consent of shareholders however (at the required resolution levels), it becomes difficult to see how a D/E swap or a stock split / sale of the operator would be executed. That would have to be arranged under Pre-Pack Administrations with possibly two parallel Schemes of Arrangement for PLC and Financing 2. Those Administrations would trigger the CDS.

Wolfgang