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Bondholders admit defeat in battle for Virgin

written by Adam Thorn | August 24, 2020
VH-VPD Virgin Australia Boeing 777-300ER - 882020
VH-VPD Virgin Australia Boeing 777-300ER – 882020 (Craig Murray)

The battle to control Virgin Australia appears to be over after its bondholders said they will now not table a rival offer at a final creditors meeting.

Victorious bidder Bain Capital responded to the announcement by claiming the investors representing the rebels, Broad Peak Investment Advisers and Tor Investment Management, earlier hinted they would abandon their offer in exchange for a more favourable return to the near $800 million owed.

Bain beat out Cyrus Capital Partners in May to become the administrator’s preferred bidder for the airline, yet bondholders fought on to recoup more of their investment. However, their fight all-but ended last week when a Federal Court judge ruled administrator Deloitte didn’t have to put the alternative bid to a shareholder vote.

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The bondholders said in a statement that while their offer represented a “superior outcome for all stakeholders”, they were “left with no choice” but to pull out after the court’s ruling.

The investors then hinted at potential further legal action should they not be offered a satisfactory return. “We reserve our rights to take whatever action is necessary to protect our interests as creditors,” said a spokesperson.

Bain hit back in a fiery statement claiming the bondholders’ proposal was “incomplete” and alleging it was secretly angling for a side deal.

A spokesperson told Australian Aviation, “[The withdrawal] is not unexpected, as they had previously suggested behind closed doors that they were willing to abandon their disruptive efforts in exchange for a much smaller recovery than the asserted value of their proposal, that would apply just for themselves. Bain Capital believes that all creditors should be treated fairly and similarly situated creditors should be treated equally.

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“Bain Capital firmly believes that its binding sale agreement reached with the administrators after an intensively competitive process is in the best interests of all creditors.”

Broad Peak and Tor responded to the accusation by telling The Australian its goal had always been to secure the best deal for its members.

“We look forward to Bain Capital disclosing the terms of its secret deal with the administrator and would encourage the information to be released at the earliest opportunity to remove uncertainty for all stakeholders,” they said.

In total, bondholders as a whole are owed $1,988 million altogether and have previously been told they will not receive the full amount. In total, 10,247 creditors, including 9,020 employees, are owed around $7 billion.

In the Federal Court last Tuesday, the bondholders’ barrister, Ian Jackman, said his clients were entitled to have their proposal, or Deed of Company Arrangement, voted for at the next creditors meeting on September.

However, Judge John Middleton threw out the appeal. There was speculation the group could challenge the decision, but that appears to have finally ended today.

Bain will still require their offer to be rubber-stamped by investors at the meeting in early September, and that will also likely require backing from the business’ employees, who represent 9,020 of the total number of creditors and are owed $451 million in total.

Significantly, it has previously reported how relations between TWU and Bain appear to have strained.

Australian Aviation understands there is anger over the rumoured involvement of former Jetstar chief executive Jane Hrdlicka, who had a notoriously fraught relationship with unions in her role at the Qantas Group.

Steer your own in-flight experience – available on print and digital Whether our classic glossy magazine in your letterbox, daily news updates in your inbox, peeling back a few layers in the podcast or our monthly current affair reports, you can count on us to keep you up to date. Sign up today for just $99.95 for more exclusive offers here. Subscribe now at australianaviation.com.au.

10 Comments

  • Gordon

    says:

    IF Bain eventually gets control of Virgin, watch what happens; it won’t be good.
    The various unions’, who think they can control whomsoever they please, are in for a shock.

  • mike A

    says:

    lot of $$$$$ at stake. I think they will have another go.

  • Linda Weaving

    says:

    So creditors, including employees, have no say in the conditions of sale? They’re supposed take Bain’s word for it that it’s ‘fair’? No agreement that shortchanges employees is fair. That entire $451 million should be paid to workers who earned it. Investors are another matter. They risked their money & lost. It happens. Investment & the stockmarket is just another type of gambling.

  • Adrian P

    says:

    Am I the only one who is confused that a deposit of 125 Million can be paid to buy the company before the creditors have approved the sale?

  • James

    says:

    Adam you’re watching this closer than I am so I figure you’re the best person to ask.

    What does it mean? After the September meeting that Bain will have “control” if Virgin and implement its official plan? Or are there still avenues that could drag this thing out for longer?

    • Adam Thorn

      says:

      Good questions James.

      So it should be the case that, after the final meeting, Bain will take full control of the airline (something which has unofficially already happened). However, it is possible the bondholders could challenge their likely poor return in the courts.

      Whatever happens, the major changes at Virgin are now almost certain to go through. Significantly, the bondholders backed the current management, and therefore their new plan for the airline.

      Keep in mind though that when the deal was agreed, there was no ‘second wave’ in Melbourne and there were strong hopes domestic would make a rapid recovery, something that now looks unlikely. I expect more of the unexpected with this as the year drags on…

      Thanks for your comment,

      Adam

  • Marum

    says:

    OK Adam. What if with these new restrictions on domestic air-travel? Bain says. No! Conditions have changed .The deal is now null and void. We’re outta here.

    I personally feel that conditions have materially changed. Bain would also be able to file as another creditor. The

    The curious cat….Marum Katze.

  • Marum

    says:

    OK Adam. What if with these new restrictions on domestic air-travel, Bain says NO? “Conditions have changed. The deal is now null and void. We’re outta’ here.”

    I personally feel that conditions have materially changed. Bain would also be able to file as another creditor.

    The curious cat….Marum Katze.

  • Pat Barry

    says:

    I’m puzzled.
    In a bankruptcy (ok, Administration) the first protection goes to employee’s salaries, the second to taxes, the third to secured creditors, and the fourth to unsecured creditors.
    But the whole point of a bankruptcy is to represent the creditors. Obviously, the plan is for the airline to keep going, so the court can do a cramdown, being to compromise the levels of creditors as it sees fit.
    Since the bondholders are creditors, then why don’t they get a chance to run the company? Why are they being excluded by the Administrator? The bondholders have a legitimate stake here and, like any creditor group, they should be entitled to submit a plan and have it reviewed by the court.

  • Warwick

    says:

    To Marum above,

    You may be right!
    Wouldn’t surprise me in the least if Bain shoots through.
    There are only so many $$$$$$ they’ll want to waste on this dead horse of a former badly-run airline. They’ve spent multi-tens of millions’ so far, & the well will run dry soon.
    First week of September will be interesting, methinks!

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

Bondholders admit defeat in battle for Virgin

written by Adam Thorn | August 24, 2020
VH-VPD Virgin Australia Boeing 777-300ER - 882020
VH-VPD Virgin Australia Boeing 777-300ER – 882020 (Craig Murray)

The battle to control Virgin Australia appears to be over after its bondholders said they will now not table a rival offer at a final creditors meeting.

Victorious bidder Bain Capital responded to the announcement by claiming the investors representing the rebels, Broad Peak Investment Advisers and Tor Investment Management, earlier hinted they would abandon their offer in exchange for a more favourable return to the near $800 million owed.

Bain beat out Cyrus Capital Partners in May to become the administrator’s preferred bidder for the airline, yet bondholders fought on to recoup more of their investment. However, their fight all-but ended last week when a Federal Court judge ruled administrator Deloitte didn’t have to put the alternative bid to a shareholder vote.

Advertisement
Advertisement

The bondholders said in a statement that while their offer represented a “superior outcome for all stakeholders”, they were “left with no choice” but to pull out after the court’s ruling.

The investors then hinted at potential further legal action should they not be offered a satisfactory return. “We reserve our rights to take whatever action is necessary to protect our interests as creditors,” said a spokesperson.

Bain hit back in a fiery statement claiming the bondholders’ proposal was “incomplete” and alleging it was secretly angling for a side deal.

A spokesperson told Australian Aviation, “[The withdrawal] is not unexpected, as they had previously suggested behind closed doors that they were willing to abandon their disruptive efforts in exchange for a much smaller recovery than the asserted value of their proposal, that would apply just for themselves. Bain Capital believes that all creditors should be treated fairly and similarly situated creditors should be treated equally.

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“Bain Capital firmly believes that its binding sale agreement reached with the administrators after an intensively competitive process is in the best interests of all creditors.”

Broad Peak and Tor responded to the accusation by telling The Australian its goal had always been to secure the best deal for its members.

“We look forward to Bain Capital disclosing the terms of its secret deal with the administrator and would encourage the information to be released at the earliest opportunity to remove uncertainty for all stakeholders,” they said.

In total, bondholders as a whole are owed $1,988 million altogether and have previously been told they will not receive the full amount. In total, 10,247 creditors, including 9,020 employees, are owed around $7 billion.

In the Federal Court last Tuesday, the bondholders’ barrister, Ian Jackman, said his clients were entitled to have their proposal, or Deed of Company Arrangement, voted for at the next creditors meeting on September.

However, Judge John Middleton threw out the appeal. There was speculation the group could challenge the decision, but that appears to have finally ended today.

Bain will still require their offer to be rubber-stamped by investors at the meeting in early September, and that will also likely require backing from the business’ employees, who represent 9,020 of the total number of creditors and are owed $451 million in total.

Significantly, it has previously reported how relations between TWU and Bain appear to have strained.

Australian Aviation understands there is anger over the rumoured involvement of former Jetstar chief executive Jane Hrdlicka, who had a notoriously fraught relationship with unions in her role at the Qantas Group.

Steer your own in-flight experience – available on print and digital Whether our classic glossy magazine in your letterbox, daily news updates in your inbox, peeling back a few layers in the podcast or our monthly current affair reports, you can count on us to keep you up to date. Sign up today for just $99.95 for more exclusive offers here. Subscribe now at australianaviation.com.au.

10 Comments

  • Gordon

    says:

    IF Bain eventually gets control of Virgin, watch what happens; it won’t be good.
    The various unions’, who think they can control whomsoever they please, are in for a shock.

  • mike A

    says:

    lot of $$$$$ at stake. I think they will have another go.

  • Linda Weaving

    says:

    So creditors, including employees, have no say in the conditions of sale? They’re supposed take Bain’s word for it that it’s ‘fair’? No agreement that shortchanges employees is fair. That entire $451 million should be paid to workers who earned it. Investors are another matter. They risked their money & lost. It happens. Investment & the stockmarket is just another type of gambling.

  • Adrian P

    says:

    Am I the only one who is confused that a deposit of 125 Million can be paid to buy the company before the creditors have approved the sale?

  • James

    says:

    Adam you’re watching this closer than I am so I figure you’re the best person to ask.

    What does it mean? After the September meeting that Bain will have “control” if Virgin and implement its official plan? Or are there still avenues that could drag this thing out for longer?

    • Adam Thorn

      says:

      Good questions James.

      So it should be the case that, after the final meeting, Bain will take full control of the airline (something which has unofficially already happened). However, it is possible the bondholders could challenge their likely poor return in the courts.

      Whatever happens, the major changes at Virgin are now almost certain to go through. Significantly, the bondholders backed the current management, and therefore their new plan for the airline.

      Keep in mind though that when the deal was agreed, there was no ‘second wave’ in Melbourne and there were strong hopes domestic would make a rapid recovery, something that now looks unlikely. I expect more of the unexpected with this as the year drags on…

      Thanks for your comment,

      Adam

  • Marum

    says:

    OK Adam. What if with these new restrictions on domestic air-travel? Bain says. No! Conditions have changed .The deal is now null and void. We’re outta here.

    I personally feel that conditions have materially changed. Bain would also be able to file as another creditor. The

    The curious cat….Marum Katze.

  • Marum

    says:

    OK Adam. What if with these new restrictions on domestic air-travel, Bain says NO? “Conditions have changed. The deal is now null and void. We’re outta’ here.”

    I personally feel that conditions have materially changed. Bain would also be able to file as another creditor.

    The curious cat….Marum Katze.

  • Pat Barry

    says:

    I’m puzzled.
    In a bankruptcy (ok, Administration) the first protection goes to employee’s salaries, the second to taxes, the third to secured creditors, and the fourth to unsecured creditors.
    But the whole point of a bankruptcy is to represent the creditors. Obviously, the plan is for the airline to keep going, so the court can do a cramdown, being to compromise the levels of creditors as it sees fit.
    Since the bondholders are creditors, then why don’t they get a chance to run the company? Why are they being excluded by the Administrator? The bondholders have a legitimate stake here and, like any creditor group, they should be entitled to submit a plan and have it reviewed by the court.

  • Warwick

    says:

    To Marum above,

    You may be right!
    Wouldn’t surprise me in the least if Bain shoots through.
    There are only so many $$$$$$ they’ll want to waste on this dead horse of a former badly-run airline. They’ve spent multi-tens of millions’ so far, & the well will run dry soon.
    First week of September will be interesting, methinks!

Leave a Comment

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

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