Originally Posted by
diffident
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 Then liquidity dries up, credit is withdrawn and suppliers stop supplying on fear of not being paid.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.
There is one huge difference here. Fosun and the banks have already agreed to inject £1.1 billion as part of the deal. I would suggest that the headlines would be positive. Let's wait and see.