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Virgin Australia bondholders lodge eleventh hour recapitalisation bid

Jamie Smyth in Sydney

The battle to win control of Virgin Australia took a dramatic twist on Wednesday with some of its bondholders lodging an eleventh hour recapitalisation proposal with administrators in a bid to recoup some of their A$2bn ($1.4bn) investment in the airline.

Virgin’s administrator Deloitte is evaluating two private equity bids for the troubled airline from consortiums led by US private equity firms, Bain Capital and Cyprus Capital Partners, and is expected to announce a preferred bidder next week.

But the entry of Virgin bondholders into the process, which as a group are one of the airline’s largest creditors, could complicate the administrators’ efforts to complete the restructuring of the company’s A$7bn debt by August.

A person with knowledge of the proposal said bondholders propose injecting A$1bn in fresh funding into the stricken airline, engineering a debt-for-equity swap to reduce its debt burden, and relisting Virgin on the ASX.

The bondholders, which include up to 30 big foreign and domestic institutions and more than 5,000 retail bond investors, expect to recoup 70 cents in the dollar on their initial investment, compared to as little as 10 cents on the dollar under the takeover offers submitted by Bain and Cyrus.

The bondholders, which are advised by Faraday Associates and Corrs Chambers Westgarth, are proposing to retain Virgin’s existing management team and follow its strategy to restructure the airline for a post-Covid-19 world.

Some restructuring experts said the bondholders last-ditch play for the airline could not be discounted but their position as unsecured creditors would limit their negotiating position with the administrator.

“The administrators don’t really have to strike a deal with the unsecured creditors, it’s the secured creditors they must strike a deal with,” said Tom Smith, professor at Macquarie Business School in Sydney.

Mr Smith said a more important consideration in the battle for control of Virgin was the airline’s 9,000 employees, who are secured creditors and one of the airline’s most valuable resources.

Cyrus and Bain have both held talks with trade unions over recent weeks and are offering employees equity incentives as part of their pitch to win support for their offers.
Richard Branson’s Virgin Group is expected to hold talks with any successful preferred bidder for the airline over the retention of the Virgin brand.

Virgin Australia was one of the first global airlines to collapse as a result of Covid-19, which brought most domestic and international air travel to a halt in April.
Its main shareholders — Singapore Airlines, Etihad, HNA and China’s Nanshan — group each own about 20 per cent while Richard Branson’s Virgin group holds 10 per cent. The administration process is expected to wipe out their equity holding in the airline.


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