The plan represents a significant gamble for Fosun, the Chinese group which owns holiday group Club Med and has had a stake in Thomas Cook since 2015.
Fosun is China's largest privately-owned conglomerate, and now holds an 18% stake in the British company.
Thomas Cook is now looking for large amount of its external bank and bond debt will be changed into equity, and its existing shareholders' stakes will be diluted after the recapitalization.
While Thomas Cook's travails have been well publicised, it still remains a shock to see a legacy operator with such an iconic brand pushing for an unprecedented debt-for-equity deal like the one now being negotiated.
Under the proposal, Thomas Cook is looking for a £750 million cash injection from Fosun and its lending banks.
"After evaluating a broad range of options to reduce our debt and to put our finances onto a more sustainable footing, the board has made a decision to move forward with a plan to recapitalise the business, supported by a substantial injection of new money from our long-standing shareholder, Fosun, and our core lending banks", Fankhauser said. "We are committed investors and have extensive experience in turning around iconic brands including Club Med and Wolverhampton Wanderers FC", confidently states Fosun Tourism.
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As a result of the news, Thomas Cook share prices have crashed almost 60%.
'While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution which provides the means to secure the future of the Thomas Cook business for our customers, our suppliers and our employees, ' chief executive Peter Fankhauser said.
Its stock had more than halved in value so far this year after several profit warnings as weak demand led to increased promotional activity and earlier discounting than usual.
Since commencing the review, the operating environment in the European travel market has become "progressively more challenging" Thomas Cook said.
Airline bookings were down 3%, with pricing up 2%.
Neil Wilson at Markets.com said the refinancing is basically "wipe out time" for shareholders. In the last 12 months, the airline's market value has decreased by 87 percent.
Fankhauser said the proposed deal with Fosun and lenders would put the firm on a "totally different financial footing" with "massively reduced debt levels".