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Virgin bondholders vow to repay Bain, Sherrard breaks cover

written by Adam Thorn | August 13, 2020
VH-VPD Virgin Australia Boeing 777-300ER - 882020
VH-VPD Virgin Australia Boeing 777-300ER – 882020 (Craig Murray)

Virgin Australia’s bondholders have vowed to repay ‘winning’ bidder Bain for the money it’s pumped in to keep the airline flying should its rival proposal be successful, Australian Aviation can reveal.

In documents filed to the Federal Court, a lawyer acting for the alternative offer publicly outlined its plans for the first time. The group said its bid would provide “an immediate better return” and also:

  • Has the backing of more than 14 major financial institutions including UBS, Credit Suisse, and Deutsche Bank;
  • Is supported by around 60 bondholder creditors, who are personally owed $800 million;
  • Will retain the airline’s base in Brisbane;
  • Will return the business to the ASX;
  • Will allow a union or employee representative to sit on the board; and
  • Will honour all employee entitlements as well as flight credits and loyalty program obligations.

Later on Thursday, former Virgin Blue co-founder Rob Sherrard confirmed speculation he had been working with the bondholders on a deal alongside former chief financial officer Manny Gill, former network operations manager Andrew Lillyman, founding HR manager Bruce Highfield and former PR boss Heather Jeffery.

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Bain beat out Cyrus Capital Partners in May to become the administrator’s 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.

The bondholders have made their move because they are owed $1,988 million altogether and have been told they will not receive the full amount. In total, 10,247 creditors, including 9,020 employees, are owed around $7 billion.

Those groups will find out exactly how much money they will receive from Bain’s proposal later in August, before the second creditors meeting and vote to rubber-stamp the deal a week later.

On Wednesday though, a lawyer working on behalf of Broad Peak Investment Advisers and Tor Investment Management submitted documents to the Federal Court, obtained by Australian Aviation, which shed new light on exactly what the group is planning to do.

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“The Applicants wish to put a DOCA [deed of company arrangement] proposal to the meeting of creditors and wish to ensure that their proposal is included on the voting ballot,” wrote Corrs Chambers Westgarth lawyer Cameron Cheetham.

Cheetham then revealed that the group has been contacted by “a number of aircraft lessors” that lease 15 737-800 planes to the Virgin Group.

He further added that the group seeks ‘stakeholder access’ so it can hold discussions with Virgin’s existing bankers, aircraft lessors, financiers, unions and the current management.

A day after the documents were filed in court, 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, broke his silence to talk publically about the bid he called the “Founders and Bondholders” proposal.

“In simple terms, we are proud investors and supporters of Virgin Australia and its people,” Sherrard said in a statement.

“We believe in the airline, firmly support the vision of management and are confident that Virgin can return to being a successful airline.

“We also want to be very clear that we don’t want to run the airline,” Mr Sherrard said. “That is the job of the existing management team. We are focused on rebuilding our airline through a solid recapitalisation proposal.

“We firmly believe our ‘Founders and Bondholders’ proposal will result in the best return for all creditors and employees.”

Earlier this week, Australian Aviation reported that Bain Capital called the bondholders’ proposal “incomplete” and “not credible”. It argued the offer was actually designed to “frustrate the administration process by creating as much noise and interference as possible”.

“Stakeholders need certainty and stability, so for the sake of the airline and its employees, Bain Capital will not be distracted by it. They do not speak for all bondholders,” said Bain

“These hedge funds are offshore and specialise in high risk and high yield debt trading. They are not set up to own or provide stewardship for such a significant company such as Virgin Australia.

“They have no aviation or direct airline ownership experience together. Neither has an office in Australia.”

Even though Bain has pumped $125 million into the business to keep it trading, the deal won’t be rubber-stamped until a creditors meeting later in August.

The Federal Court has already confirmed the bondholders have the right to put forward their alternative plan for a vote.

Bain’s putdown came after administrator Deloitte itself similarly criticised the bondholders’ bid, which it said was “highly conditional and contained no evidence of committed funding”.

“In these circumstances, we were unable to take this proposal forward given the lack of certainty and the level of conditionality,” added Deloitte.

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.

4 Comments

  • Anton

    says:

    If the Bondholders get their way, it is the end of Virgin as we all know it!

  • Paul

    says:

    So why did this bondholders group not use the process of bidding when the administrator went to market? Better still why did the bondholders allow, together with the board at the time, to allow the airline to fall into administration?

  • Mark

    says:

    I hope Bain can proceed with their plans, they seem to have a clear vision to succeed.

  • Alison

    says:

    Because bond holders weren’t given access to the data room so they could have access to the information needed to make a bid and the owners weren’t allowed to inject funds due to foreign investment laws even though they were prepared to invest the funding needed – the Govt was unwilling to make exceptions on this – ironically the new bidders are American not Asian – apparently there are more favoured foreigners when it comes to being allowed to pump money into Australia. There are thousands of Australian small investors holding these bonds – billions of dollars striped from SMSFs and the complete erosion of trust on the Australian bond market – the knock on effects of screwing over bond holders will be very damaging.

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Virgin bondholders vow to repay Bain, Sherrard breaks cover

written by Adam Thorn | August 13, 2020
VH-VPD Virgin Australia Boeing 777-300ER - 882020
VH-VPD Virgin Australia Boeing 777-300ER – 882020 (Craig Murray)

Virgin Australia’s bondholders have vowed to repay ‘winning’ bidder Bain for the money it’s pumped in to keep the airline flying should its rival proposal be successful, Australian Aviation can reveal.

In documents filed to the Federal Court, a lawyer acting for the alternative offer publicly outlined its plans for the first time. The group said its bid would provide “an immediate better return” and also:

  • Has the backing of more than 14 major financial institutions including UBS, Credit Suisse, and Deutsche Bank;
  • Is supported by around 60 bondholder creditors, who are personally owed $800 million;
  • Will retain the airline’s base in Brisbane;
  • Will return the business to the ASX;
  • Will allow a union or employee representative to sit on the board; and
  • Will honour all employee entitlements as well as flight credits and loyalty program obligations.

Later on Thursday, former Virgin Blue co-founder Rob Sherrard confirmed speculation he had been working with the bondholders on a deal alongside former chief financial officer Manny Gill, former network operations manager Andrew Lillyman, founding HR manager Bruce Highfield and former PR boss Heather Jeffery.

Advertisement
Advertisement

Bain beat out Cyrus Capital Partners in May to become the administrator’s 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.

The bondholders have made their move because they are owed $1,988 million altogether and have been told they will not receive the full amount. In total, 10,247 creditors, including 9,020 employees, are owed around $7 billion.

Those groups will find out exactly how much money they will receive from Bain’s proposal later in August, before the second creditors meeting and vote to rubber-stamp the deal a week later.

On Wednesday though, a lawyer working on behalf of Broad Peak Investment Advisers and Tor Investment Management submitted documents to the Federal Court, obtained by Australian Aviation, which shed new light on exactly what the group is planning to do.

PROMOTED CONTENT

“The Applicants wish to put a DOCA [deed of company arrangement] proposal to the meeting of creditors and wish to ensure that their proposal is included on the voting ballot,” wrote Corrs Chambers Westgarth lawyer Cameron Cheetham.

Cheetham then revealed that the group has been contacted by “a number of aircraft lessors” that lease 15 737-800 planes to the Virgin Group.

He further added that the group seeks ‘stakeholder access’ so it can hold discussions with Virgin’s existing bankers, aircraft lessors, financiers, unions and the current management.

A day after the documents were filed in court, 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, broke his silence to talk publically about the bid he called the “Founders and Bondholders” proposal.

“In simple terms, we are proud investors and supporters of Virgin Australia and its people,” Sherrard said in a statement.

“We believe in the airline, firmly support the vision of management and are confident that Virgin can return to being a successful airline.

“We also want to be very clear that we don’t want to run the airline,” Mr Sherrard said. “That is the job of the existing management team. We are focused on rebuilding our airline through a solid recapitalisation proposal.

“We firmly believe our ‘Founders and Bondholders’ proposal will result in the best return for all creditors and employees.”

Earlier this week, Australian Aviation reported that Bain Capital called the bondholders’ proposal “incomplete” and “not credible”. It argued the offer was actually designed to “frustrate the administration process by creating as much noise and interference as possible”.

“Stakeholders need certainty and stability, so for the sake of the airline and its employees, Bain Capital will not be distracted by it. They do not speak for all bondholders,” said Bain

“These hedge funds are offshore and specialise in high risk and high yield debt trading. They are not set up to own or provide stewardship for such a significant company such as Virgin Australia.

“They have no aviation or direct airline ownership experience together. Neither has an office in Australia.”

Even though Bain has pumped $125 million into the business to keep it trading, the deal won’t be rubber-stamped until a creditors meeting later in August.

The Federal Court has already confirmed the bondholders have the right to put forward their alternative plan for a vote.

Bain’s putdown came after administrator Deloitte itself similarly criticised the bondholders’ bid, which it said was “highly conditional and contained no evidence of committed funding”.

“In these circumstances, we were unable to take this proposal forward given the lack of certainty and the level of conditionality,” added Deloitte.

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.

4 Comments

  • Anton

    says:

    If the Bondholders get their way, it is the end of Virgin as we all know it!

  • Paul

    says:

    So why did this bondholders group not use the process of bidding when the administrator went to market? Better still why did the bondholders allow, together with the board at the time, to allow the airline to fall into administration?

  • Mark

    says:

    I hope Bain can proceed with their plans, they seem to have a clear vision to succeed.

  • Alison

    says:

    Because bond holders weren’t given access to the data room so they could have access to the information needed to make a bid and the owners weren’t allowed to inject funds due to foreign investment laws even though they were prepared to invest the funding needed – the Govt was unwilling to make exceptions on this – ironically the new bidders are American not Asian – apparently there are more favoured foreigners when it comes to being allowed to pump money into Australia. There are thousands of Australian small investors holding these bonds – billions of dollars striped from SMSFs and the complete erosion of trust on the Australian bond market – the knock on effects of screwing over bond holders will be very damaging.

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

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