Shares in Thomas Cook tumbled 39 per cent on Friday © Getty

Thomas Cook shares were branded worthless on Friday, triggering a collapse in the value of the UK’s oldest travel business and raising concerns among customers travelling this summer to its holiday resorts around the world.

Shares in the 178-year-old group fell almost 40 per cent on Friday after Citigroup said it was at risk of a “vicious” cycle. It warned that customers could be unsettled after Thomas Cook reported a pre-tax loss of £1.5bn this week and revealed its auditor had noted material uncertainties over the successful sale of the group’s airline business and a new credit facility.

Thomas Cook, which is suffering under high debts and concerns over demand for traditional package holidays amid Brexit uncertainty, has raced to shore up its balance sheet.

But the FT has learnt that US hedge funds have taken stakes in the company’s bonds as well as its revolving credit facility, positioning themselves for a potential restructuring of the company’s debt that would wipe out shareholders in the business and leave debt holders in control.

Investors including Anchorage, TT International and Whitebox have emerged as among the biggest short sellers of Thomas Cook stock — in effect benefiting from bets on a fall in its share price. But at least two of these — TT and Whitebox — have also taken stakes in the company’s debt, according to people familiar with the situation, which would allow them a role in any debt-for-equity swap if needed to secure the company’s future.

Citigroup also said the group would likely need to be rescued by raising money through new shares, or through a debt-for-equity swap.

One top 10 shareholder said that it would even back a sale of the whole of the Thomas Cook business, depending on the price and should the sale of the airline business not be enough to restore financial stability. “At this point in time the balance sheet issues need to be sorted out and if that means getting into bed with someone with deeper pockets then so be it,” he said.

Some shareholders rallied around the group on Friday. Steve Davies, fund manager of the Jupiter UK Growth Fund, a top five shareholder, said: “It is only two years ago that this business was making £250m of profit and I do think it is capable of getting back to those kind of levels in more normal market conditions.”

Fosun, the Chinese conglomerate that also owns almost a fifth of Thomas Cook’s shares, has been touted by analysts as a potential source of rescue funds, but one person close to the company said it was not certain that Fosun could put more money into a foreign business given its own target for reducing debt. Fosun did not respond to a request for comment on the matter.

James Ainley, the Citi analyst, said the group’s high debts meant that he saw “option value only remaining in TCG’s equity”.

The warning from the influential investment bank heaped further pressure on Thomas Cook, exacerbating doubts over its ability to continue trading. Shares in the company tumbled 39 per cent on Friday to 11.8p.

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The group’s bond maturing in 2020 was on Friday trading at less than 50 per cent of face value — a heavily distressed price — having been at about 65 per cent at the end of last week.

The cost to insure against a bond default using five-year credit default swaps rose to 50 percentage points upfront, according to Bloomberg data, meaning it now costs $50m to insure $100m of debt, on top of $5m a year in premiums. The contracts also show that traders are favouring short-term protection, fearing an imminent default.

The company disclosed on Thursday that it had agreed a new £300m lending facility. However, the new financing arrangement would be “principally dependent on progress in executing the strategic review of the group airline”.

Sten Daugaard, Thomas Cook’s chief financial officer, said the new loan facility would give the group “headroom” during the low winter season, and was calculated on an “absolute worst case” scenario.

Thomas Cook on Thursday sought to assure investors that it had a number of “credible bids” for its airline, which it put up for sale in February. But Citi said it struggled to see the company receiving a high enough offer to prevent the deal being dilutive to earnings.

Lufthansa previously confirmed it had registered a bid for Thomas Cook’s airline and Virgin Atlantic has also been linked to the sale. Thomas Cook on Thursday would not confirm any bidders and said it would update the stock market “in due course”.

Additional reporting by Robert Smith in London and Don Weinland in Beijing

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