Indebted holiday firm MyTravel said yesterday it would lose its trading licence if it did not complete an £800 million (€1.14 billion) rescue by year-end, in a sign of rising tensions with rebel bondholders.

MyTravel, which is a significant player in the Irish travel market through its Panorama and Direct Holidays operations, has been swamped by £1.3 billion of debt racked up during an expansion drive. In October, it proposed to slash its borrowings by exchanging £800 million of debt for equity through a consensual deal with creditors and shareholders.

Holders of £216 million of convertible bonds had said they wanted more than a proposed 8 per cent of the firm, but MyTravel has given them until tomorrow to give the plan 75 per cent backing or else get just 2 per cent equity through an alternative plan, a so-called scheme of arrangement where bondholders would not get a vote.

MyTravel said yesterday that the Civil Aviation Authority (CAA) would likely remove its trading licence if the restructuring was not implemented by the end of the year, in a move piling on the pressure to get a deal done.

"The board believes that, if a restructuring on terms acceptable to the CAA is not implemented by the end of the year, the CAA is likely to revoke the group's licences and as a result the group would be unable to continue trading," MyTravel said in a letter to bondholders.

The threat of insolvency may be a veiled message that MyTravel is on firm ground as a legal battle with bondholders looms.

If it does not get majority backing, MyTravel - formerly known as Airtours - will start court proceedings on Thursday to demonstrate that, without the restructuring, it would go bankrupt and that, in such a situation, convertible bondholders would get nothing, or nearly nothing, because they are subordinate to other debt.

But bondholders have hired big-hitting advisers Cadwalader and Houlihan Lokey in a clear sign of their intention to fight for more than the 8 per cent they were originally offered.

"Because they're bondholders, they'll hold out until the last minute to squeeze out an extra per cent," said a source close to MyTravel creditors, remote to the bondholders.

Bondholders will argue that, because the company is about to complete a restructuring, it is not facing bankruptcy, the source said.

MyTravel convertible bonds were bid at 12 and offered at 14 per cent of face value yesterday, slightly down from the mid-teens last week, one trader said.