Thomas Cook's banks have appointed Ernst & Young to advise them in a sign lenders are gearing up for a possible restructuring of the tour operator, sources familiar with the situation told Reuters.
The world's oldest travel company Tuesday asked banks to come to its rescue for the second time in five weeks, sending its shares into freefall.
A trader in Thomas Cook's debt told Reuters the decision by the company's 17-strong banking syndicate to appoint a debt advisor suggested they anticipated an in-depth restructuring will be necessary rather than just a refinancing.
I suspect they (E&Y) are in there to do an independent review and come up with solutions. It will take time to identify the options, the trader said.
We believe that the sum of the parts may be greater than the whole, in which case, the company might decide to spin bits off. But it is a tough market and any competitor willing to take that over is not going to pay a premium, he said.
Thomas Cook and Ernst & Young both declined to comment.
Analysts have called into question the future of the 170-year-old company, which provides holidays for 19 million customers each year and employs 30,000.
Charles Stanley analyst Douglas McNeill said uncertainty around the company made it impossible to forecast its profit this year. Thomas Cook's operating profit this year could be almost anything, from 200 million pounds down, and with zero not necessarily representing a lower bound.
The other unknown variable is the attitude of the banks. They are under no obligation to cut the group further slack, but their other options look just as unattractive, he said.
Thomas Cook, which has issued a string of profit warnings, has been hit hard by tough trading conditions, especially in Britain where its core customer base of families with young children has been particularly affected by tough economic conditions. That could now be exacerbated by customers being put off booking because of the uncertainty surrounding the business.
People will be put off dealing with Thomas Cook, Michelle Baldwin, a recruitment consultant, looking at deals in the window of Thomas Cook's shop in Moorgate, London, told Reuters.
People will want to go with a company that is not associated with bad news, even though they will have protection. They feel safer that way.
TUI Travel, which owns the First Choice and Thomson chains, could benefit from negative publicity surrounding its rival. One customer looking at offers in the window of a Thomson shop in Surrey Quays, London, said he would be wary of travelling with Thomas Cook again.
People, particularly families, will be concerned about getting stranded now. If they get out there and the company goes bust while they are away, how are they going to get home? said the 29-year-old from Essex, who gave his first name as Simon.
British Prime Minister David Cameron said he had asked the business ministry to look into the matter.
I have obviously asked the Business Department to give me a report on what is happening in terms of Thomas Cook, because I think it is important to make sure that this business is in a healthy state, Cameron said in parliament.
Loan market traders marked down Thomas Cook's term loans and revolving credit facility to 57.5 percent of face value in secondary markets, from 62.5 percent Tuesday.
The loans are relatively illiquid and not actively trading.
Shares in Thomas Cook were up 18 percent to 12 pence at 1530 GMT, regaining only a fraction of their losses this week.
TUI Travel was up 13.5 percent to 155.1 pence.
(Reporting by Tim Castle, Isabell Witt, Alessandra Prentice and Philip Baillie; Editing by Adrian Croft and Jane Merriman)