Banks set to agree £1.2bn deal to save Thomas Cook

Travel company to extend loans for two years but must still sell assets and close shops

Thomas Cook, the beleaguered travel operator, appeared to buy itself two more years of breathing space yesterday, announcing that it was close to a £1.2bn deal with its banks.

Just months after its last refinancing, the debt-laden operator said it was in "advanced discussions" with its 17 lenders, including Royal Bank of Scotland and Barclays, in a deal that would extend the repayment of its loans by two years until 2015.

Britain's oldest and best-known tour operator is expected to pay dearly for the extension, however. It is thought likely to give the consortium 5 per cent of the company's shares, pay a higher interest rate and possibly a one-off fee.

"Thomas Cook confirms that it is in advanced discussions with its banking group about extending its financing arrangements," the company said in a statement. "In addition to the revised financing arrangements, the previously announced asset disposal programme and the sale of Thomas Cook India, the group is exploring a possible sale and leaseback of certain aircraft," the company added.

Thomas Cook, which has 23.6 million customers in 22 countries, is struggling as the recession hits demand for its main business – short-haul holidays for middle-class British families – which, in turn, makes it hard for it to meet its hefty interest repayments.

Thomas Cook will hope that the refinancing draws a line under its woes, after a turbulent 12 months which saw three profits warnings last year.

Manny Fontenla-Novoa resigned in August as the group's woes gathered momentum and was replaced by Sam Weihagen.

An emergency £200m loan brought the group some respite at the end of November, but trading has continued to be tough as fears about Thomas Cook's financial position exacerbated an already challenging travel market and bookings slumped.

Shares in Thomas Cook, which have fallen by nearly 90 per cent in the past year, are expected to increase today as the loan extension reduces the need for a firesale of assets. However, the company will still sell assets, with a sale and leaseback of its plane fleet, its stake in Nats, the air traffic control group, and its Indian business expected to be the first to go.

Thomas Cook is also shutting 200 of its 1,300 UK high-street stores, with the loss of up to 1,000 jobs. Last year it sold its Spanish hotel chain to Iberostar.

Thomas Cook made a £151.7m loss in the three months to 31 December, compared to a £99.3m loss during the same period in 2010.

Last month, Mr Weihagen said trading across the group was "stable" and in line with expectations. However, he said the outlook for the business remained challenging, pointing to the French market as being particularly weak.