LONDON, Sept 18 (Reuters) - The fate of travel firm Thomas Cook could be shaped by a technicality: that a panel of bankers declare it has committed a default before it can be saved, in order to satisfy credit investors who had bet on its demise.
Thomas Cook agreed the key terms of a rescue deal with shareholder Fosun last month, but it must be approved by creditors next week.
Holders of Credit Default Swaps (CDS), instruments used to insure exposure to credit, are digging in for a payout for their bearish bets on the company.
The Credit Derivatives Determinations Committees (DCs) have been asked to adjudge: “Has a Bankruptcy Credit Event occurred with respect to Thomas Cook Group PLC?”
Both CDS holders and Thomas Cook itself will want the answer to be “yes,” to remove any chance that the CDS holders reject the restructuring plan next week in order to get paid, thereby pushing the firm to the brink.
“Some debtholders would simply try to block the vote for the rescue plan if they were not helped in activating the CDS,” said an analyst at a European bank, who declined to be named.
The request to the (DCs) was submitted by an “Eligible Market Participant” after Thomas Cook filed for Chapter 15 bankruptcy protection in the United States.
Thomas Cook, the world’s oldest travel firm which has 21,000 employees across 16 countries, declined to comment, while the Credit Derivatives Determinations Committees were not immediately available for comment.
The determination committee, made up of representatives from big banks, is expected to meet on Thursday. Even if they do not rule to trigger the payout, Thomas Cook retains some control over the payments under the terms of the filing.
Chapter 15 is a technical process that Thomas Cook must undergo before the restructuring plans are voted on, but it does not involve a bankruptcy process of any kind in relation to Thomas Cook.
If the determination committee deems that there has not been a “Bankruptcy Credit Event”, attention will turn to a Scheme Meeting scheduled for Friday, Sept. 27, when creditors will vote on Thomas Cook’s restructuring plan. A court date on the plan is scheduled for Sept 30.
If creditors vote to reject the plan, that would leave the firm scrabbling to secure its future by early October and the off-peak winter season, when cash reserves are low.
The meeting, originally expected to take place on Wednesday, was rescheduled on Monday “as part of the process to finalise the full commercial terms between Thomas Cook Group’s creditors and stakeholders.”
Reporting by Alistair Smout, Karin Strohecker and Josephine Mason in London and Danilo Masoni in Milan