Thomas Cook is selling bonds to help get itself out of debt

Thomas Cook Group Plc, the 172-year- old U.K. tour operator, started marketing a sale of 525 million euros ($676 million) of bonds as part of a package to refinance the equivalent of $2.4 billion of debt.

The company is selling seven-year bonds that are callable after three years and they may be priced to yield 7.625 percent to 7.875 percent, according to a person familiar with the transaction. That compares with a yield of 3.6 percent on the company’s existing euro bonds due June 2015, Bloomberg prices show.

The tour operator has negotiated 691 million pounds ($1 billion) of loans and plans to raise 425 million pounds in a rights offer and share placement in addition to the bond sale, the London-based company said in a May 16 statement. The company is raising the funds as the cost to insure high-yield corporate debt dropped to the lowest since May 20, 2011, according to the Markit iTraxx Crossover Index of credit-default swaps.

“Credit is tightening faster than even we, the most bullish of observers, would have expected,” Suki Mann, a strategist at Societe Generale SA in London, wrote in a report.

Thomas Cook is rated B- by Standard & Poor’s and Fitch Ratings, six levels below investment grade. Investors demand an average 6.5 percent to hold B rated euro corporate bonds, near the record 6.4 reached on May 10, Bank of America Merrill Lynch index data show.

With assistance from Robert Wall in London. Editors: Michael Shanahan, Tom Freke. To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net. To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net.