Cluster of hedge funds set to profit from Thomas Cook failure

Fosun Tourism

23/09/2019 15:19

* Nearly 1-in-10 of company's free-float shares on loan
    * TT Intl, Whitebox Advisors had biggest short positions
    * Follows Monday collapse of rescue funding talks

    By Simon Jessop
    LONDON, Sept 23 (Reuters) - The collapse of travel operator
Thomas Cook  TCG.L  is set to result in a bumper pay day for a
clutch of hedge funds who bet the company's share price would
fall.
    Around 600,000 holidaymakers have been left stranded abroad
after last-minute talks over a financial rescue package
faltered, bringing to an end the company's 178-year history.
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    After struggling for months under a crippling debt burden
and market-related hits to revenues, it had agreed a rescue
package with China's Fosun  1992.HK , only to see lenders demand
the firm stump up more cash, forcing it into liquidation.
    As a result of its long-running troubles, hedge funds had
increased the size of their collective 'short' bets against the
company, with funds including TT International and Whitebox
Advisors together short nearly 7% of the company's stock.
    In a short trade, a hedge fund pays a small fee to borrow a
company's shares and then sells them into the market, hoping to
buy them later at a cheaper price and return them to the
original owner, pocketing the difference as profit.
    When a firm goes bust, once the insolvency administrator has
signed off on the collapse of the company their obligation to
buy back the shares disappears and they can keep all the profit.
    
  
    Data from industry tracker Astec Analytics to the close on
Friday showed that more than half the shares made available to
borrow by long-term shareholders such as pension schemes was
actually out on loan, with borrowing costs near a 12-month high.
    A smaller group of funds had short positions in the company
greater than 0.5% of its stock, and so were required to notify
regulator the Financial Conduct Authority, among them TT, with
3.83%, and Whitebox, with 3.15%.
    Other funds with large positions included Kite Lake Capital
Management, with 1.3%; Melqart Asset Management, with 1%; Pictet
Asset Management, with 0.51%; and Silver Point Capital, with
0.92%, FCA data to Friday's close showed.
    It was not clear how many hedge funds had a short position
on the stock as not all are forced to disclose by name to the
regulator. Nor is it clear how much each would have made, given
the shares are often borrowed and sold over a period of time and
at different prices.
    Shares in Thomas Cook were priced at 3.4 pence a share when
trading was suspended.
    Holders of Credit Default Swaps (CDS), instruments used to
insure exposure to credit, may also stand to receive a big
windfall from their bets against the company. A panel of bankers
will decide whether they will get paid out later on Monday.
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
GRAPHIC-Thomas Cook shares    https://tmsnrt.rs/2myQNnn
GRAPHIC-Thomas Cook CDS    https://tmsnrt.rs/2muhIAA
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Simon Jessop; Additional reporting and graphics
by Josephine Mason; Editing by Alex Richardson)
 ((simon.jessop@thomsonreuters.com; +44 (0) 207 542 5052;
Reuters Messaging: Reuters Messaging:
simon.jessop.thomsonreuters.com@reuters.net))