Cluster of hedge funds set to profit from Thomas Cook failure

By Simon Jessop

LONDON (Reuters) - The collapse of travel operator Thomas Cook 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.

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.

(GRAPHIC: Thomas Cook shares,

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.

(GRAPHIC: Thomas Cook CDS,

(Reporting by Simon Jessop; Additional reporting and graphics by Josephine Mason; Editing by Alex Richardson)

Must Read

Bolt advances, Russian qualifies and an engagement at track

Aug 17, 2016

The midpoint of the nine-day track and field program at Olympic Stadium was a day for diamond rings and making friends, a rare Russian hello and a surprising Brazilian farewell

Conventional tax proposals in an unconventional US campaign

Aug 17, 2016

In this unconventional campaign season, Donald Trump and Hillary Clinton have produced two conventional tax plans that mostly track their parties' long-standing views

Global stocks dip ahead of release of Fed minutes

Aug 17, 2016

Global stocks and the price of oil dipped Wednesday as investors awaited the release of the minutes to the Federal Reserve's latest meeting for hints on when the next interest rate increase might come


Obserworld delivers the most accurate and up-to-date world news for the global audience with a thorough research and in-depth interviews. Discover the world through Obserworld.

Contact us: sales[at]