Thank you. Good evening, everybody. It's an interesting day. Actually, it's a good day for TUI, I think. I'm remote sitting in Germany, and the team is sitting everywhere, and we are meeting virtually since days and weeks. It's the nature of this crisis, which is a huge crisis and the biggest crisis tourism has ever seen, that we are not sitting together and therefore, I need to say right now that I want to talk about page number three. While you might be guided to three, I just want to say that the whole TUI finance team is sitting here with Birgit Conix and Mathias Kiep and all the team in Hanover and Brussels, and also Peter Krueger. Peter will be talking after me as he has been our lead and architect of the deal, negotiating with the related parties.
Now, let me open for a moment and, as you know, we started into the crisis very strongly. Before the crisis, we had very good booking numbers and enormous year-on-year increases, and then the revenue went down to almost zero in the quarter starting April. We recovered a little bit and had roughly 2 million customers after July, and now it's very volatile again, and you see that on page number five, this here which is included into the package for your information. Today, I don't want to talk about anyhow about trading at the year-end results. That is something we will talk about next week, as we will close our books for the year-end only by next week. Today I would like to talk about the support package which we have been negotiating.
The support package, which actually has been signed today by all relevant parties, is a huge indication of confidence into our business and into our company as such. It is actually a package which is a multilateral package among different parties. Let me highlight a couple of them. The first one is, of course, the capital increase with subscription rights of approximately EUR 500 million. That is something which we would have thought was not possible just a week ago, but with the increased share price due to all the COVID news and the vaccine COVID news has made it possible, and we negotiated last minute, and we are backed by four banks. That's also interesting and very good, led by the Mordashov family.
If at all possible, they are striving to increase their share in our company, and I think that is an enormous sign of confidence, and without that, I think. Let's say, based on that, it's a very good basis to go ahead. The state will be participating, WSF with a convertible into shares. They are trying, or they are striving to do a silent participation that is a capital increase. I think it's important because these two components, the first one, the subscription rights as well as the convertible into shares, these two components strengthen our share capital. It's not debt. That's also something which is strongly contributing to balance sheet repairs in the future and for the future of the company.
State guarantees have been negotiated, and these are actually not fresh money, but to free up restricted cash and collateral in the company, which of course, based on the situation we have been in, has increased over time, and it's restricted cash, of course, cash in the company. Now we can work with that cash again, and again, it's not fresh money, therefore, it doesn't need to be repaid. On top of that comes another tranches of debt instruments. I would say the situation today is that we can say today the liquidity has been taken care of for the company now and also the balance sheet repair is very well underway, much better than I would have thought. Maturities are now pushed out, first maturities to the second half of 2022, so it's a lot of time.
Also, I think the business, if at all, with the vaccines and the good news on the first licensing of vaccine in the U.K. today is another piece of it as well as rapid test as the major, so antigen test as a major method for travel, not closing borders, no quarantine, but antigen tests actually are leading now. We believe we are strongly positioned to benefit from any market recovery, which I think we are seeing or will be seeing in due course. I'm pretty sure that the existing package, which actually now is in place after very hard work, I have to say, we are very well positioned to resume our growth trajectory. With that said, that's my introductory remark, and I think I should be handing over right now, Birgit, right?
Peter, right to you, Peter, to explain what actually is part of the package and how it all plays out.
Yes. To Peter, yeah.
Okay. Peter, please.
Great. Thank you very much, Fritz. Have a very good afternoon also from my side, and welcome everybody. Best page to look at is page six. Here we have illustrated the deal components again. As Fritz said, it's a package deal consisting of €1.8 billion. It's including and based on the support of our shareholders as of today, the support from our major shareholder, Alexey Mordashov. It's also supported by a syndicate of banks on the debt and also on the capital increase side. Of course, as Fritz said, there's also an element of government support and participation in the company. Now, let's look at the single deal components. The first one we described as WSF, that's the shortcut for the Economic Stabilization Fund in Germany. Similar to a structure that you may have seen in the market at Lufthansa, and this comprises of two hybrids.
In specific terms, these are two silent participations. We call it hybrids to simplify. We talk about a net commitment of EUR 700 million in detail, and in the appendix, you will find more details on the deal structure. The gross amount equates to EUR 900 million, but given we've been able to commit to a capital increase of EUR 500 million over the last couple of days, the net exposure of WSF is reduced automatically to EUR 700 million, while the remainder of EUR 200 million provides a backup facility for TUI in case there would be a shortfall of the capital increase in excess of EUR 300 million. If you look at the single hybrids, the first hybrid is a EUR 420 million hybrid. It has a conversion option into TUI shares, but only up to a maximum of 25%+ one share.
The conversion price is EUR 1. This is a straight convertible. If you look at the second component, we talk about EUR 480 million gross and EUR 200 million 80 net. That's the EUR 200 million knock-off from the higher capital increase than originally anticipated, which equates to EUR 280 million hybrid. This is a straight hybrid instrument subordinated, which also receives IFRS equity credit. As you can see from the chart, this part of the deal, this is the leading agreement, leading framework agreement for the entire deal. It's also important to mention that all of the deal components, of course, have to materialize for the entire deal to come alive. We have, as Fritz said earlier, we have committed all of the deal components as of today. Therefore, there's a very high level of transaction certainty.
If you look on the very right-hand side at the top, the deal also comprises a EUR 200 million additional revolving credit facility supported by KfW. It's largely at the same terms of our existing RCF lines that you receive from KfW already. The main difference here. This will be a secured line, while the other lines we had so far were all unsecured. As part of the agreement with KfW, we've also managed to prolong our maturity that was coming due at 1st of April in 2021, and have moved this maturity of EUR 500 million alongside the deal now and pushed it out to a maturity date of July 2022. Next year, there will be no maturities at TUI.
We have been able, as part of this deal, and I'll come to it in a minute as regards to the bond, to actually move out all of our maturities until July 2022. The third element you can see here is described as a state guarantee. The idea here is to receive state guarantees that should enable TUI to unlock cash collateral. You may have seen and noticed that over the recent months, we have accumulated quite substantial cash collateral positions with some of our suppliers. On the back of the state guarantee, the idea is to unlock and free up that cash. While the guarantee itself is a non-cash instrument, it will enable TUI to unlock liquidity and therefore strengthen our liquidity position. As you also can see here, and I have to mention that the state guarantee is per se committed from the government.
There is an alternative embedded in the term sheet that actually provides us with the flexibility to have an increase in hybrid two in case the final state guarantee will not materialize in time. This commitment needs to be signed and agreed as part of the subsequent deal documentation, and therefore, just in case, to have a safety net, there is also a clause in the WSF term sheet that the hybrid two will be increased by EUR 400 million as a potential bridge in case the state guarantees will not materialize. The last component, but a very important component, is a EUR 500 million capital increase. Here the whole idea is to reduce our nominal value of our shares from EUR 2.56 to EUR 1 and then issue 500 million new shares at EUR 1 net.
The issue price will be EUR 1.7 to also account for the transaction costs, the net proceed to TUI will be 500 million shares at EUR 1. This is a capital increase with subscription rights. All of our shareholders are invited to participate. We think it's a quite attractive offer. This entire amount is 100% underwritten by our largest shareholder, Unifirm, and the remainder by a syndicate of four banks, and you can see the name of the four banks on that page. Two of them are our corporate brokers, as you know. The proceeds from this transaction, the EUR 500 million, EUR 300 million out of these proceeds will have to be used to repay our senior bonds outstanding that are maturing in October this year. As you're aware, based on the amended bond documentation, this is a mandatory prepayment of the bond.
At the moment, we receive the EUR 500 million proceeds. Let's have a quick look at this deal from three perspectives. You may have noticed in various statements that I've seen so far ahead of the call, I noticed there are three different numbers in the system. One is EUR 2.3 billion, the other one is EUR 1.8 billion, and the third one is EUR 1.5 billion, and I'm sure you're questioning how all of these numbers relate. Let me just give you a very brief description. EUR 1.8 is the total package, as you can see on this page, consisting of EUR 700 million hybrids, EUR 400 million guarantees, EUR 200 million RCF, EUR 500 million capital increase.
The additional EUR 500 million to get to a EUR 2.3 billion number, this is the prolongation of the maturity of the existing RCF line, which is not fresh money to TUI, but which is actually moving out the maturity and then making another EUR 500 million available to TUI until July 2022, therefore providing us more headroom for liquidity for a longer period in time. The EUR 1.5 billion is actually the EUR 1.8 billion liquidity we receive net of the repayment of the EUR 300 million of bonds, which leads to a net liquidity increase by EUR 1.5 billion. That's the liquidity perspective. You could also look at this transaction from a financing perspective. As I already mentioned, from a financing perspective, it's important to point out again that there is no maturities in 2021, next maturity only in July 2022.
Therefore there's an embedded kicker on the financing side in the sense of no maturities. The third perspective you could take on this deal is clearly from a balance sheet support or repayment perspective. Here again, based on the EUR 1.8 billion, you can see EUR 500 million is equity raising from private investors. There is this EUR 420 million hybrid with conversion, so depending on the assumption of conversion or not, this could convert into equity, and therefore you can think of a EUR 920 million non-refundable equity portion from a redemption perspective. You have the EUR 400 million of guarantees. Again, the guarantees is non-cash, so they don't have to be repaid. They have to potentially be replaced, which will be possible based on a rating increase of TUI. Therefore, this is likely amount that has not to be refinanced or repaid in cash.
The only remaining two elements that will have to be repaid in cash for sure is the EUR 200 million RCF of KfW plus the EUR 280 million of WSF hybrid. Only if, and it's important to point out again, only if we draw on these amounts. First of all, we have to draw these amounts, and then of course we have to repay. If we don't draw on these amounts, then we don't have to repay. Therefore, you can see also from a redemption and an equity strengthening perspective, this deal ticks a lot of boxes and we are happy that we actually received a combination of private and public money, combine it in a deal package that is addressing a lot of our financing requirements. Now, moving on to page seven. This is a snapshot of the timeline.
This is telling you what is ahead of us. Obviously, today, 2nd of December, we signed the agreements, all of the agreements on the previous page as part of the package. The entire deal package is secured. We will also publish our full-year results next week on the 10th of December, you can see that we will fairly soon thereafter send out an invitation for an extraordinary general meeting. This is required for three main reasons. First, to have a resolution by the shareholders on the capital reduction from EUR 2.56 to EUR 1 nominal value, plus to get a resolution for the EUR 500 million capital increase, plus to have a resolution on the EUR 420 million hybrid one.
This will be a virtual extraordinary general meeting, which will take place in January, as you can see, and then shortly thereafter, we're planning to launch the rights issue, which, according to German standards, as you will be aware, is foreseeing a two weeks subscription offer period. During the subscription offer period, investors can choose to participate in the capital increase, and then the settlement will follow shortly after the last day of the subscription offer period. That's the summary on the deal, on the timeline, and with that, I will hand back to you, Fritz. Hello, operator. Can I check if you're still on the line? Sorry, because I can't hear anything.
Yes, I can confirm you are still on the line. Fritz, I think your line may be unmuted. Your line may be muted. Could you please unmute?
Oh, sorry. I did my final remarks and muted. This is actually typical for all these electronic communication. I hope you can hear me now. The thing I said, I think the whole package is strategically not only addressing liquidity, it also addresses balance sheet. It addresses all the basic needs to be even stronger after the crisis. All the pent-up demand we see when we open corridors show that tourism will be intact. When you look at page number nine maybe to close with that, I think our business model is strong and is very relevant and we will be in a very good market position, returning to profitable growth after the crisis. With that, I would like to open for questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. The first question comes from the line of Stuart Gordon from Berenberg. Please go ahead.
Good afternoon. A couple of questions, please. First one is, can you give us any form of guidance, given all the moving parts, I appreciate results next week, on debt service costs for 2021 post the transaction? Secondly, does the liquidity you mentioned, is that before or after the fees being paid for this deal, which look to be quite significant? The third question is, I think you have the choice of making the interest on the hybrid one payment in kind. How will that work? Will it result in more shares being available to convert, or will it simply accrue and at some point in the future you'll need to pay cash? Thanks.
Do you want to take that, Peter or Mathias or both?
Sure, I'm happy to. On the first point, debt service cost, I think, Stuart, this is indeed something we have to discuss next week. As we said, this announcement today is not about our financials and which we present to you in detail next week. Now, in terms of liquidity, you can see in our statement we're talking about 2.5 billion of liquidity as of end of November. This is after a pro forma repayment of the 300 million bond. The gross liquidity would be EUR 2.8 and we can also confirm to you that the net proceeds to TUI will be EUR 500 million of the share offering. The delta between one EUR and EUR 1.07 is fees that will be retained by the underwriting banks. In terms of fees, you have to acknowledge one thing here, Stuart, which is a bit untypical.
The time for underwriting is quite a long time here from the bank's perspective. Typically in the German market, underwritings will happen from start of subscription period. Here the banks are underwriting already from the announcement today, therefore it's a much longer time period. We have to go through an ECM process, therefore the fees are a little bit higher as you noticed, but the net proceed to TUI will be the $500 million under the equity offering. The payment in kind, under hybrid one, that's absolutely in the discretion of TUI. The mechanism is accrued interest, as you said, this will be cash effective later.
We have the option to keep the cash interest cost for the company low over the next couple of years, so as long as we have the hybrid outstanding, and therefore can accrue all of these interests from a cash perspective.
Okay, thanks very much. Just to be clear on those fees on the EUR 0.0107, that's all the fees. That includes lawyers' fees, other bank fees associated to the other financing, any fees that are payable to the state for the financing, that's the EUR 0.0107 covers it all?
Correct.
Thank you.
The next question comes from the line of James Ainley from Citi. Please go ahead.
Yeah. Good evening, everybody. Thank you for taking my questions. The first question is, if I've understood you correctly, you're not gonna disclose the coupon on the hybrid. Second, just want to be clear about how many shares we think there could be outstanding. Are we saying that base of 589 plus the 509 for the capital increase? If the hybrid is converted, it would be up to 25% of that in large share capital, so ultimately about 1.46 billion shares. Confirm that, please. Based on what you've told us, that looks to me like you've been running at some cash burn at around EUR 500 million a month the last two months. Again, please, could you just confirm my math is correct?
Yeah.
Thank you.
Hi, James. Can I really please ask that we talk about the numbers next week? It is in a week from here, and that we really keep the questions on the current government package.
Sure. Okay.
Exactly. Thanks, James.
Thank you. Sorry about that.
Which brings it down to two out of three questions, James, right? The first question on the hybrid. We've not disclosed the terms, but to give you a brief guidance, this is single mid digits at the beginning, but there's of course a ratchet over time. Over time, this will accrete to more double digit numbers, which also puts up an incentive for the company to repay the hybrid at one point in time. The calculation you did on the dilution is absolutely correct. 519 million shares now, plus another 500 million new shares under the equity offering, makes it 1,090. If you calculate a 25% participation of the government, this would accrete to another 360 million shares at EUR 1. The total shares outstanding would be 1,450, if the hybrid one is converted into 25+ one.
Yeah. Thank you. Sorry, just that last question on liquidity, I was really just trying to reconcile what you told us that the current liquidity of the business, assuming repayment of the corporate bond is EUR 2.5. If you've raised the EUR 1.5 therefore net, add EUR 2 billion of liquidity at the end of September, that would imply that from what you've told us today, that you've burned through about EUR 1 billion of cash in the last two months. I was really just trying to reconcile those numbers and make sure I'd understood that maths correctly.
Let's discuss these numbers next week, James, right? I understand your question, sorry, but part of your calculation is relating to the current on and latest trading, and we cannot disclose these numbers now in this blackout period. Please, let's focus on this question again next week.
Okay.
Yeah, you can. Thank you. Thank you for that, James.
The next question comes from the line of Jaafar Mestari from Exane BNP Paribas. Please go ahead.
Hi. Good afternoon. First question, please, just on where investors should have expected this deal to land. I just want to refer to the first October, where there were press reports that you could look at a capital increase between EUR 1 billion and EUR 1.5 billion. You issued a public response, stating that any capital raise would be significantly lower than EUR 1 billion to EUR 1.5 billion. I appreciate that many things have changed since early October. A couple of the green dots on your charts turn red or yellow. My question is, if I take the equity raise today plus the two hybrids together, I could be saying, well, there's EUR 1.2 billion in equity here. My question is, which of the hybrids would you consider to be equity in a base case scenario?
I'm not talking about the potential dilution, but is your hope that the hybrid one will be repaid when you're in a position to do a complete refinancing on slide 11? You say you can terminate it by TUI once the loans and the other hybrid have been redeemed. Is that a realistic base case, or should we be looking at fully diluted share count, please?
Yeah. It's a very good question, Jaafar. Let me answer it in the following way. While a lot of the operational color coding on page five have turned red, a lot of the financing options have turned green in the last couple of weeks, which is very good news for TUI. Also sends a strong signal from investors trusting in the performance and the ability of the company to recover. Now, as regards your calculation, you can indeed take the view of EUR 1.2 billion of equity if you look at it from an, let's say, conversion perspective. If you add the IFRS equity credit of hybrid number two, then you indeed end up with a EUR 1.2 billion. That is, I think, a good perspective.
On the dilution, this is ultimately a decision the government has to take, so we cannot comment from the company side whether the government is intending to convert its convertible into shares. Having said that, you can also see that this hybrid is a deeply in the money hybrid, right? There's maybe some economic incentives. There may also be some political incentives to do so. As a fair guidance, I think you should look at a probability-weighted, fully diluted basis. If that makes sense.
Thank you. That makes a lot of sense. Then just to clarify, is that EUR 500 million plus EUR 420 million, is that what you consider to be significantly lower than the press reports? Or is this because you've had to upsize since your thinking in early October?
Yeah, as I said, Jaafar, I think the optionality from the TUI side in terms of financing instruments becoming available has increased significantly, right? You've also maybe tracked our CDS development. Also the CDS has come down significantly, also today on back of the announcement. As regards equity, if you take a look of EUR 500 million capital increase plus EUR 420 million of hybrid, that brings you a loan to EUR 800-EUR 920 million, which is ballpark in the area of EUR 1 billion. If you add the hybrid too, as you say, you get to EUR 1.2 billion, which is again, ballpark to the numbers you quoted before.
Thank you very much. If I'm allowed a last one, a second question, on ultimately what's the ideal financing structure for this business at the moment? Something that's really helpful in your emergency financing, in the KfW financing, is that it's basically just on the same terms as your RCF, and it'd be beautiful if you could have as big an RCF as you wanted. Realistically, once you turn to the commercial banking market to refinance this package in due time, do you think you can obtain an RCF for the group that's bigger than EUR 1.5 billion, which is what you have pre-COVID? Will you have to refinance some of that in longer-term debt instruments, and then that may not be optimal?
Yeah, if I take that question, Jaafar, I think it may be a combination of both, right? Clearly, both is an option. Time will tell, right? The market is always right. Let's look at the developments of our CDS, of the company, of the business in the next six to eight months. You're also making a good point, of course. While we have a maturity of EUR 722, which seems very far away, of course, we have to look at the refinancing of our financing instruments a lot earlier. Of course, we will keep you updated and posted on our thinking there. As I said, it may be a combination of both, depending on prevailing market conditions.
I think, Peter, I think it gives us also the time to look at our balance sheet structure in general. I mean, that is equally important when you look at the balance sheet. I think it's important. We have enough means, I think, to M&A or other instruments to actually take the actions which are needed.
All right. Thank you very much.
The next question comes from the line of Nicholas Penney from Helikon. Please go ahead.
Yes. Hello, good evening. I just wanted to understand a little bit better the conversion rights of the silent participation, number one. Obviously it says that there are termination rights that you guys have if you can repay all the other loans. Is there still sort of a right for the German government to effectively convert by any point if they sort of desire to do so, and let's say if their financial incentive is to do so, if the share price is higher than one EUR, substantially higher as it is now at the very least. I can imagine it will be quite high.
Yeah. I think as you said, right, the EUR 420 million. Basically the way to look at hybrid one is that it's capped by two data points. One is the EUR 420. The other data point is 25%+ one share. The government cannot go higher than that at any time. These two caps will apply. You can see that the conversion rights are at one EUR subscription price, which is actually the same net price as for the capital increase. As you pointed out, this is an American style option, right? It's fully convertible upon the decision of the government to do so. Therefore, the conversion rights are with the government.
I think what you were saying before is that there is certainly a political incentive to convert, I suppose, and a financial incentive to convert it. Say the share price is EUR 2, EUR 3, EUR 4 basically, right? Because it's obviously German taxpayers' money.
Yeah, exactly. As I said before, we cannot speak on behalf of the government. For your models, I think it's prudent to assume a probability-weighted dilution from that instrument. That's my personal view.
The 25.1% limit, is it for both of the convertibles, meaning this one and the one from the previous package as well, which I think has around 9%?
Aggregates. It's aggregates.
The addition of 256 or something.
It's aggregate.
It's aggregate.
Aggregate of both, okay. Obviously the other one is a higher strike price. In a way, it's more likely to be converted than the other one, I suppose.
No.
Yeah, the first one.
Okay.
Yeah. Peter, you go ahead, please.
In the first one, while you mentioned it, right, in the first one, there's a dilution protection that takes down the strike price from 256 to 1 EUR as well. If there's a capital reduction to 1 EUR. There's also a right from the government to convert the EUR 150 million bond plus ones. The warrants into TUI equity.
The total shareholding of the estate will not be above 25+ one.
Just the last question on my end would be.
Maybe the first one, I think, Peter, also can be traded, right? There might be a dilution, but not by the state, if I recall it correctly, right?
Yes, that's true. You're right, Fritz. The important point is both together cannot lead to a higher shareholding than 25%.
Okay.
Just a last question is, we have the support from the largest shareholder, even in excess of its position. I guess you have two other sort of large non-institutional shareholders, let's say. Is that an indication if they're also going to support the rights issue?
Yeah. Maybe I take that. Of course, we have a lot of discussion, and at the end of the day, the good thing is everybody believes in the future and the company. Now, when you look at RIU, for example, because they have 3.1%, there are better ways for them to support the company than potentially buying shares or not. When you look at, for example, our trading agreements we have with hotels and commitment agreements with hotels, the important point is liquidity and of course, when you just calculate it, you see that RIU is a shareholder in the company for what, 30 years or so. They are staying around for such a long time. They don't need to do a commitment. I'm not here to say they would or wouldn't.
When you look at our commercial deals right now, hotel payments and so on, these companies are strongly behind the TUI company itself.
Thank you very much.
The next question comes from the line of Cristian Nedelcu from UBS. Please go ahead.
Hi. Thank you very much for taking my questions, and thank you for your presentation. Just two questions left from my side. Firstly, on the guaranteed credit facility, the EUR 400 million. I understand, well, you've explained it, that it sort of replaces some restricted cash. Could you elaborate a bit more on this restricted cash? Is it part of it to the regulators, part of it, I think you mentioned, to your suppliers? Any more color, and is it EUR 400 million of restricted cash as of today? It is lower today, but you expect that to increase? My second and last question, if I may.
This deal definitely shores up the liquidity position and, on my estimates, at the end of December, you'll have probably EUR 2 billion of liquidity, which is actually a little bit better than the EUR 1.8 billion of liquidity that you had in December 2019. I guess my question is, could you elaborate on the company plans in terms of actually reducing your gross leverage from here going onwards? Do you still have in place that 2.25x to 3x gross leverage target? If you can elaborate a little bit on the means and timeline of bringing the gross leverage towards whatever the current targets are. Thank you very much.
Yeah.
Can I?
Oh, sorry.
Please. Yeah.
Yeah, on the gross leverage.
Go ahead.
Yeah. On the gross leverage, we keep our target. That is also 2.25x to 3x . In terms of more color to that and numbers, I suggest again, sorry for that we take that question next week, when we will be able to go into a bit more detail. On the collaterals, these are cash collaterals from, let's say, also credit card companies, but also travel bonds. This has to do actually with just the current situation that we are in. This package really offers the opportunity to unlock the cash. That is actually great news.
Understood. Thank you. Just to be clear, the liquidity number that you present in the slides today, that excludes any sort of restricted cash. That is separated from that liquidity number. Is my understanding correct?
Yeah, that is correct. When we talk about liquidity, that means there is no restricted cash in that number.
The next question comes from the line of Michele Fiumara from Helikon. Please go ahead.
I'm sorry. My questions have been answered. Thank you.
There are no further questions in the queue, so I'll hand back over to your host for any closing remarks.
Thank you, everybody. I think this day is a great day for the company. We have worked hard in order to get this financing in place, which addresses not only liquidity but also the balance sheets and address the balance sheets as well. Let's keep fingers crossed and for year-end trading, and I'm very happy that we will talk just a week from now about year-end and other trading updates. Thank you very much, and have a great evening.