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Thomas Cook is the centre of attention

Tour giant Thomas Cook will this week be the centre of attention after UK research outfit Morgan Stanley sounded the alarm bells over the company's increased debt. Citing adverse currency movements, higher than expected exceptional costs, a weakness in working capital and a significant expansion programme over the last few years, the broker believes that the company may find it difficult to refinance current debt liabilities in the short term.

There is much reference to the company's banking covenant, which is currently at a comfortable three times, but there is also concern that we could see a short-term dip in profitability which could possibly reduce the "comfort zone" between the current balance sheet and banking covenants. However, at this moment in time this is all speculation although it does appear that research houses in the City of London are starting to turn against the UK tour operators, who have yet to announce any significant increase in bookings for the next 12 months.

It is not difficult to see how the tour operators in the UK could be squeezed in the short term, with luxury spending still a rarity for many people, although how severely they would be impacted is very much open to debate.

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