Virgin’s administrator won’t accept bondholder bid

written by Adam Thorn | July 20, 2020
VH-XFD Virgin Australia Airbus A330-200 - 2992019
VH-XFD Virgin Australia Airbus A330-200 shot on 29/9/2019 at Brisbane Airport (Craig Murray)

Virgin Australia’s administrator has told creditors it won’t be accepting a rival bid from bondholders – despite a Federal Court judge insisting the group can put their alternative proposal to a vote.

Deloitte made the declaration in a letter sent on Friday, which also confirmed that ‘winning’ bidder Bain has already pumped $125 million into the business to keep it trading.

Bain beat out Cyrus Capital Partners last month to become the preferred bidder for the airline, yet bondholders have vowed to fight on and put a rival bid forward so they can recoup more of their $2 billion investment.

Advertisement
Advertisement

On Friday, Deloitte’s Vaughan Strawbridge sent a memo to creditors, seen by Australian Aviation, which outlined how the sale was progressing.

It confirmed that, on 24 June, the business received what it called a “back-up recapitalisation proposal” from bondholders, represented by Broad Peak Investment Advisers and Tor Investment Management.

However, it said it was unable to accept “any alternative offer for the sale” because Bain is committed to buying the business.

In a line seemingly related to the bondholders’ bid, Strawbridge said, “An additional proposal to that from Bain Capital and Cyrus Capital was received, which we considered.

PROMOTED CONTENT

“However, it was highly conditional and contained no evidence of committed funding to enable a transaction to be completed. In these circumstances, we were unable to take this proposal forward given the lack of certainty and the level of conditionality.”

The move to rebuff the bondholders comes despite a Federal Court judge explicitly confirming last week that the group could put their bid forward to creditors for a vote on 26 August.

“The administrators’ preference for one proposal does not justify the exclusion of all other proposals from consideration by the creditors,” Justice John Middleton said in documents also obtained by Australian Aviation.

The letter revealed for the first time an exact breakdown of how much the 10,247 creditors, including 9,020 employees, are owed. In total:

  • Secured lenders and aircraft financiers are owed $2,284 million;
  • Unsecured bondholders are owed $1,988 million;
  • Trade creditors are owed $167 million;
  • Aircraft lessors are owed $1,884 million;
  • Landlords are owed $71 million;
  • Employees are owed $451 million (in the event of liquidation); and
  • Customers entitled to credits for flights which were cancelled due to the pandemic are potentially owed $604 million.

Those groups will find out exactly how much money they will receive from Bain’s proposal on 19 August 2020, before the second creditors meeting and vote to rubber-stamp the deal on 26 August.

Bain has already guaranteed employee entitlements, including potential redundancy payouts, will be covered in full as will customers’ travel credits and refunds.

Earlier in July, Virgin Australia’s bondholders said in the Federal Court they would put their alternative proposal to creditors in August.

The revelation came despite the group losing a case to obtain access to secret details of Bain’s bid approved by administrator Deloitte.

The court action was the latest move in a long saga that began when Virgin Australia’s bondholders broke cover and launched an attempt to wrestle control of the airline days before Bain won.

The bid was linked with Virgin Blue co-founder Rob Sherrard, who famously wrote up the initial concept of the low-cost carrier with Brett Godfrey on the back of a beer mat in a London pub.

Did you know that Australian Aviation Magazine comes digitally? Subscribe to Australian Aviation’s digital magazine for just $59.95 a year! Our app is available on mobile, tablet and PC devices! Subscribe now at australianaviation.com.au.

8 Comments

  • Nicholas

    says:

    Re the bond holders.

    As my mum said to me when I was a boy, if it sounds to good to be true then it most likely isn’t true.

    The rate the bond holders were offered was a clear indication of the risk they took on in their purchases.

    Sometimes you win, sometimes you don’t…

  • Ian

    says:

    it’s not over til it’s over. This has a long way to play out & Qantas will benefit from the uncertainty & Rex is waiting in the wings to start a full service jet airline SYD/MEL with much lower costs.

  • Jake

    says:

    The staff (so valued aparently) are the lowest of an airlines debt, yet the first to get screwed!
    The regulators fix is in!

  • R. Hamilton

    says:

    I think this has ramifications far beyond airlines. If the Bond-holders end up with nothing, it will shake the whole Exchange Traded Bond industry.

    For ages, investment advisers have been recommending that retirees such as myself, have a “ladder” of bonds, providing a regular income stream, to supplement dividends and other investment income. If the Bond-holders receive nothing, it will cause most retirees to rethink their whole investment plan, and perhaps quit investing in bonds until this memory fades. As most of us are now in our seventies or close to them. This will mean; “Never again in our lifetime.” At least for commercial bonds. So XTBs and YTMs appear to be an endangered species, at least for the next 5 – 10 years or so.

    The whole world has changed, due to this SARS variant pandemic. And certainly, not just for aviation. Many industries have changed – probably forever. For instance, a group of my friends and I, were planning a trip to SE Asia later this year. We have now postponed that until late 2021 or perhaps 2022. So that is money which will not flow into any economy for a couple of years. I imagine we are not the only ones.

    Regards….Marum.(Die fliessende Katze)

  • Linda Weaving

    says:

    Sounds like creditors are going to get a raw deal. I don’t see how anything other than complete payment of all debts owing can be acceptable to anyone. Will Bain do this? Will Bain carve up & sell off parts of the business ? Seems likely. They are just an investigation corp after all, and that’s how they make their money. It’s not like Virgin Australia is a viable business as it is! But no-one knows because it’s a secret!

  • Linda Weaving

    says:

    Sounds like creditors are going to get a raw deal. I don’t see how anything other than complete payment of all debts owing can be acceptable to anyone. Will Bain do this? Will Bain carve up & sell off parts of the business ? Seems likely. They are just an investigation corp after all, and that’s how they make their money. It’s not like Virgin Australia is a viable business as it is. AND they plan to keep the same execs in charge who ran it into the ground in the first place. But no-one knows because it’s a secret!

  • Darcy

    says:

    So Deloitte’s are able to ‘disobey’ a Federal Court ruling?
    This whole process stinks.
    One can only imagine what’s now going on behind closed doors by Bain.
    It should be interesting, & surprising, come the August dates.

  • jay

    says:

    Deloitte..corrupt to the bone. Why did they not let all interested parties place a bid? Why do they not respond to any e-mail or phone calls? Why do they not let everyone have a look at documents..? One answer to all the questions; from day one they want only one side to get the deal done.

    My advise to the business world, stay away from Deloitte.

Leave a Comment

Your email address will not be published. Required fields are marked *

Each day, our subscribers are more informed with the right information.

SIGN UP to the Australian Aviation magazine for high-quality news and features for just $99.95 per year