26th Apr 2019 13:47
LONDON (Alliance News) - Moody's Investors Service downgraded the credit rating for travel firm Thomas Cook Group PLC deeper into "junk" status on Friday, as it raised concerns about its ability to bolster its balance sheet in the face of market uncertainty.
Moody's cut the corporate family rating for Thomas Cook to B3 with the rating also under review for a further downgrade. Prior to the move, the credit analyst had a B2 rating for Thomas Cook.
"Today's rating action reflects our concerns over the company's ability to recover its credit metrics after the sharp deterioration in fiscal year 2018 due to the ongoing challenging market environment," Moody's Senior Vice President Martin Hallmark said.
Moody's explained the GBP875 million revolving credit facility available to Thomas Cook was of "vital importance" to smooth out the "high business seasonality" of the firm in the first and second quarters of the year.
After weaker earnings for the year ended September 2018, Moody's explained the GBP1 billion in cash held by Thomas Cook was "not enough to cover the GBP1.2 billion negative free cash flow generation" in the first quarter of financial 2019.
"Thomas Cook has operated with sufficient liquidity in the current fiscal year, however Moody's considers that potential for further cash outflow in fiscal 2019 and reductions in the availability of short term financing could put pressure on liquidity in fiscal 2020", the credit analysts explained.
In financial 2018, Thomas Cook reported it had sunk to a GBP53 million pretax loss from a GBP43 million profit the year prior. This was despite revenue rising to GBP9.58 billion from GBP9.01 billion the year before.
Hallmark added: "We expect further negative free cash flow generation this year to pressure already weakened liquidity. A sale of the Airline business has the potential to improve the group's liquidity, however the execution risks for the sale are high and valuation and the timing are uncertain."
Turning to the prospect of a further downgrade, Moody's explained it will "focus" on the trading prospects for the summer season. This period it considers as "critical" for Thomas Cook to improve its credit metrics and with regards to its prospects for liquidity.
Shares in Thomas Cook were 1.1% higher at 26.94 pence on Friday.
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