Bondholders unveil Virgin plan

Virgin’s bondholders would get back up to 67c in the dollar under an ambitious rival proposal put to the airline’s administrators.

Virgin Australia aircraft are seen parked on the tarmac at Brisbane International airport on April 21, 2020. Patrick Hamilton / AFP

Virgin Australia’s bondholders have made their boldest move yet in a bid to take control of the airline, putting a detailed proposal to administrators in an effort to sink the sale to Bain Capital.

The Deed of Company Arrangement (DOCA) compiled by significant bondholders Broad Peak and Tor, seeks the support of the other 6000 noteholders, and even proposes a board seat for an employee representative in a bid to get unions on side.

Under the proposal, those who supported a planned $800m capital raising would receive 50-67c in the dollar, or 38-47c for those who do not participate.

The proposal to Deloitte’s Vaughan Strawbridge came two days after Virgin management outlined their strategy for the resurrected Virgin, which would see 3000 jobs lost.

But that plan had no detail on what returns would come to the bondholders and Mr Strawbridge reiterated on Wednesday he would not put their proposal to a meeting of creditors, now set down for September 4.

On Friday a spokesman for Deloitte said “given the binding nature of the agreements (with Bain Capital) no further offers can be considered.

“This includes the bondholder groups’ proposal re-submitted last month, and this has been communicated to those groups,” he said.

“While it is open to any party to submit an alternative proposal, it cannot be considered by the administrators, or recommended to creditors, given the binding agreement already in place.”

The comments appeared to be at odds with a Federal Court judgement last month which ruled that the bondholders “have the ability at the next meeting of creditors to propose a DOCA”.

There is speculation Bain could impose a huge bondholder haircut of around 90 per cent, which has driven the push for an alternative strategy to be presented to creditors.

The new funding support from the bondholders, in the form of a convertible note, would be underwritten by Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management which together hold $300m in unsecured notes issued by Virgin Australia.

But it will also be offered on a pro-rata basis to all the compromised unsecured creditors.

Broad Peak and BP&T are among 30 institutional bondholders said to have about $11 trillion under management and 6000 mum and dad investors owed a total of $2bn by Virgin.

The airline went into administration on April 21 with debts of $6.8bn.

The bondholders plan is not dissimilar to that outlined by Virgin Australia CEO Paul Scurrah on Wednesday, with a workforce of about 6000 employees, a one-aircraft type fleet of Boeing 737s and the retention of the executive team and the Brisbane headquarters.

It also involved paying all employee entitlements in full and honouring travel credits.

“In our view, Virgin’s strengths lie in its domestic business, supplemented by a streamlined international business that is focused on servicing nearby segments such as New Zealand and Bali,” said the bondholders’ proposal.

“Our plan envisages retaining substantially all of the 737s and returning the remaining aircraft.”

The bondholders expect the 2022 financial year will be the first normalised year of Virgin’s operations, following the devastating impact of the COVID-19 pandemic on the airline.

“Compared to the company’s EBITDAR of $943m for FY18 and $844m for FY19, we believe that an EBITDAR of approximately $1bn for the financial year ending in June 2022 (which we are estimating as the first full year of normalised operations) is a reasonable basis to assess the value of the business,’’ the document said.

The proposal reiterated that bondholders were seeking access to Virgin stakeholders and information to enable the DOCA proposal to be finalised before the second creditors’ meeting and to avoid any conditions.

“These stakeholders include employees, the Velocity Trustee, and the lessors and other financiers. When the Administrators categorise the bondholder DOCA and recapitalisation proposal as “uncertain” and “conditional” they are only referring to our request to allow us to have those confirmatory discussions in order to finalise our proposal,’’ the document says.

“We believe that if the administrators co-operate with us, we can finalise our diligence and present Virgin creditors with an unconditional DOCA at the proposed second meeting of creditors which will result in the best possible recovery for all creditors.

“We have been requesting this access and information to confirm the conditions outlined above from the administrators but have not been given any assistance in this regard while we understand the two short-listed bidders had been provided with all such access and information and Bain Capital continues to actively engage with all of these stakeholders to finalise its plan.”

The document also flagged the possibility of appointing employee representation to the airline’s board.

“We look forward to working with management, employees and unions to chart a fair pathway forward for Virgin following its return to the ASX, including possible employee representation at board level if supported by employees and their representatives,’’ it said.