Bondholders make last-minute bid for Virgin Australia

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Virgin Australia bondholders have lodged an eleventh-hour proposal to recapitalise the stricken airline that is the subject of rival takeover bids from two US private equity groups. Deloitte, the carrier’s administrator, is in the process of evaluating competing offers from consortiums led by Bain Capital and Cyprus Capital Partners. It is expected to announce a preferred bidder as early as this week. The entry of Virgin bondholders into that process on Wednesday could complicate efforts to complete the sale and the restructuring of the company’s A$7bn ($4.9bn) debt by August. The bondholders, which are owed about A$2bn, are as a group one of the airline’s largest creditors. A person with knowledge of the matter said the bondholders had proposed injecting A$1bn in fresh capital into Virgin, a debt-for-equity swap and relisting the company on Australia’s stock exchange. The bondholders include up to 30 big foreign and domestic institutions and more than 5,000 retail investors. They hope to recoup 70 cents on the dollar from their initial investment under their proposal. Under the takeover offers from Bain and Cyrus they could recover as little as 10 cents on the dollar. The group, which is being advised by Faraday Associates and Corrs Chambers Westgarth, would retain Virgin’s existing management team and stick with a restructuring plan already in place. However, some analysts said the bondholders’ position as unsecured creditors would limit their negotiating power. Unsecured creditors do not have a claim to a company’s assets, in contrast to secured creditors. “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. “Unless it is a very good offer then, I think what happens with this administration process is that [unsecured bondholders’] claims can be erased,” he added. Virgin’s 9,000 employees are an important consideration in the battle for control of the airline. Cyrus and Bain have both held talks with trade unions in recent weeks and have offered employees equity incentives in a bid to drum up support for their offers. But one restructuring expert, who did not want to be named, said other creditors could still throw their weight behind the bondholders’ bid if it proved superior to those made by the private equity groups. Richard Branson’s Virgin Group is expected to hold talks with whichever group is named the preferred bidder over the retention of the Virgin brand. Virgin Australia was one of the first global airlines to collapse due to Covid-19, which brought most commercial air travel to a halt in April. Singapore Airlines, Etihad Airways, HNA and China’s Nanshan group each own about 20 per cent of the carrier while Mr Branson’s Virgin holds 10 per cent. The administration process is expected to wipe out their equity holdings in the airline.