Originally Posted by
763 jock
I have a totally polarised outlook to yours. If the view is that Thomas Cook is on the verge of bankruptcy (it is) then the CDS kicks in. The bondholders get what they want and they vote in favour of the recap on the 27th. Thomas Cook emerges from court on the 30th with a huge cash injection and new owners. Its debts are gone which is good news for creditors, suppliers, future bookings, ATOL licences etc. All the intelligent press articles see it along those lines.
The doomsday scenario is if they emerge from tomorrow without a payout and can't leverage enough from Fosun and the supporting banks before the 27th.
Yep, this is where the viewpoints diverge. The CDS won't kick in unless the company is in default. Being "on the verge" is not enough, it is a matter of fact. If the company is determined by the panel tomorrow to be "in default" (and/or insolvent) thus triggering the CDS's - the bondholders will be happy, but the headlines will be that Thomas Cook is insolvent (regardless if at that exact moment it is or not), because it has triggered a default swap. Then liquidity dries up, credit is withdrawn and suppliers stop supplying on fear of not being paid. It's the old economic domino effect that has done for so many otherwise well built and stable businesses over the years.
Thomas Cook could publish a bank statement showing cash on hand in the financial times, but the confidence will already be broken.
My personal view? I've seen this a good number of times with companies in a range of different industries. Frankly, the future of a business should not be determined by a bunch of folks in suits sat in a skyscraper in New York making decisions based on investment performance and what's in it for them. It is not uncommon for a sound business to have short-term cash flow issues, and be pushed over the edge in these situations by these institutional investors.
Its all so very brutal.