TT. Tui Travel

TUI Travel PLC (TT.LN), Europe's largest travel operator, Tuesday said it plans to raise GBP490 million to refinance its shareholder loan with parent TUI AG (TUI1.XE) and warned its winter booking volumes remain lower than last year.

Separately, it said it would cancel almost half its orders for Boeing Co.'s (BA) delayed new 787 aircraft.

TUI Travel raised GBP350 million by issuing to international institutional investors senior unsecured convertible bonds due 2014, which will convert into about 7% to 8% of shares on maturity. The conversion price has been set at 349.3 pence per share and carries a 6% coupon.

It also will arrange a further GBP140 million in revolving credit facilities, maturing in June, 2012.

TUI Travel is deferring the final repayment of GBP150 million of the TUI AG loan to April 30, after net debt passes a seasonal peak.

TUI Travel's existing shareholder loan from TUI AG currently amounts to GBP900 million and is due for repayment by Jan. 15, 2011. TUI AG has agreed to waive in part previous terms that require TUI Travel to repay the loan if new external financing is raised.

TUI AG, which holds a 51.6% stake in TUI Travel, won't participate in the convertible bond but intends to purchase a sufficient number of TUI Travel's shares to avoid dilution of voting rights.

TUI Travel expects TUI AG to buy about 2.5% of existing stock.

TUI Travel Chief Executive Peter Long said: "The financing measures announced today allow us to commence repayment of our shareholder loan in a pro-active manner and will also allow us to continue to take advantage of attractive M&A opportunities."

It announced it has spent GBP55 million entering into a strategic venture with tour operator Sunwing to strengthen its position in the Canadian market. It will take a 49% interest in the venture.

Long said TUI Travel would increase its planned expenditure on acquisitions beyond the level seen in recent years and added it could also invest in organic growth, via increased capital expenditure. In the current financial year, TUI Travel has spent GBP120 million on 14 acquisitions and joint ventures.

It has also decided to take a 9.9% stake in Air Berlin PLC (AB1.XE) for EUR33.5 million, subject to regulatory clearance, rather than paying the company EUR15 million in compensation after announcing Sept. 8 it would abandon deeper cross-shareholding plans. The payment for this transaction will be settled through a reduction of the amounts owed to TUI AG under the shareholder loan.

Long added it would sell on the stake to TUI AG.

Trading in the period since Aug. 12 was in line with expectations, and TUI Travel remains satisfied with its trading performance. TUI Travel said the current summer season that runs until the end of October in most markets is fully sold. Consumers are increasingly holding off on booking holidays in order to save money, but TUI Travel said it continues to achieve required load factors - the proportion of available holidays sold - and pricing levels by reducing capacity to match lower demand.

It said the later booking trend had continued into the winter 2009/2010 season and it was cautious about planning capacity. It added it has retained significant flexibility to adjust capacity to reflect shifts in demand.

Early bookings in the U.K. for the summer 2010 season are in line with last year, with average selling prices up 4%, it said.

KBC Peel Hunt analyst Nick Batram said winter selling had started slowly and with "further threats from currency and unemployment, we see no reason to chase the shares at the current point."

TUI Travel is also cancelling 10 of the 23 Boeing 787s it has on order, with first deliveries of the remaining aircraft expected in 2012. The company became the European launch customer for the aircraft, which is running more than two years late after design and production problems, with first flight expected by the end of the year.

Boeing has already lost 73 orders for the aircraft so far this year, but still has a backlog of more than 800. Tui said it would take 13 purchase options for potential future delivery.

Shares Tuesday closed flat at 266 pence.

Company Web site: www.tuitravelplc.com

-By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299; kaveri.niththyananthan@dowjones.com

(Doug Cameron in Chicago contributed to this article.)

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