A consortium of leading banks have given First Choice, the tour operator, a bigger-than-expected £1.2 billion credit facility despite the continuing turmoil in global debt markets.

First Choice said the demand to support the company from lenders including Barclays Capital and Societe Generale had been so strong that it decided to opt for a facility £200 million above its initial projections.

The debt will cover TUI Travel, the holiday group that will be formed next month following the merger in March of First Choice and its German rival TUI, which owns Thomson.

The move is a major shot in the arm for the City.

Some of the world’s largest buyouts have been shelved as investors become far more wary of backing deals funded by the debt market.

Sir Richard Branson’s Virgin Media became the latest victim on Tuesday when it announced it was delaying a potential $23 billion sale until it could see an improvement in the debt market.

Last week, the Cunico Resources mining group backed by the Israeli diamond entrepreneur Benny Steinmetz, blamed its decision to scrap a £1.2 billion float on the market volatility fuelled by the credit squeeze.

Peter Long, the chief executive of First Choice, said: “The successful refinancing is a major step towards the launch of TUI Travel plc and I am delighted with the support we have received from our banking partners.”

A source close to First Choice added: “The TUI merger has gone down well in the City. It will become a FTSE company, Europe’s largest tour group, and has a very strong management team.

“Lenders are still there if the quality is right.”

In a final trading update before TUI Travel lists next month, First Choice said that mainstream summer bookings were 6 per cent up on a year ago following a 27 per cent rise in long-haul holidays.

However in its own announcement, TUI blamed the weak dollar and poor holidays sales in Northern Europe for a sharp fall in profits over the three months to June 30. Underlying earnings fell to €18 million against €128 million a year ago.

TUI said that it had also been hit by lower freight rates in its container shipping business but insisted that a recent recovery in holiday bookings and freight rates signalled a big second-half improvement.

Its summer bookings are currently up 3.5 per cent, with customer numbers 7.9 per cent higher.

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