Virgin Australia’s new owner Bain Capital has confirmed unsecured creditors, including bondholders, will receive between just nine and 13 cents in the dollar on their investment.
Bondholders admitted defeat last week in their bid to gain control of the airline, but their offer was speculated to generate a far higher return of more than 50 cents in the dollar. The group, represented by Broad Peak and Tor, have hinted they could take legal action if they are unsatisfied with the final outcome.
In a statement made to the ASX on Tuesday morning, Bain finally confirmed the full details of their offer to take control of the airline, which will need to be rubber-stamped by creditors in a crunch meeting on 4 September. It reveals that:
- The total commitment of Bain is $3.5 billion;
- All employee entitlements will be paid in full;
- All customers travel credits will be honoured;
- Bain will repay a “significant portion” of secured debts and aircraft lease debts; and
- Will return between $462 million and $612 million to unsecured creditors.
Deloitte’s Vaughan Strawbridge, who has overseen the administration process, said the deal represents an “excellent outcome” for Virgin Australia.
“We have set out our opinion to creditors that it is in their interest to approve the deed of company arrangement proposed by Bain as it provides for the best return to creditors in what are extraordinary circumstances, and that were impossible to foresee,” said Strawbridge.
“This will provide certainty for the business under new and committed owners. It provides certainty for employees and customers. It provides a return to creditors. And it can be completed sooner, and at less cost to creditors.”
Creditors will now vote on the proposal in a second meeting on 4 September. However, should they reject the deal, the airline will still be sold to Bain in an ‘asset sale agreement’ – meaning Bain has now effectively won.
The administrator confirmed in July that shareholders were unlikely to receive a cent under the deal, and that other creditors would only see limited returns.
In July, Australian Aviation revealed the total breakdown of money owed was:
- 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 that were cancelled due to the pandemic are potentially owed $604 million.
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.
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 will still require its 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 been reported that 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.