Court advises Deloitte to open up on details of Virgin sale to Bain

Bondholders owed billions by Virgin Australia believe they can derail the sale of the airline to Bain Capital with a ‘superior proposal’.

Virgin Australia administrator Vaughan Strawbridge is under pressure from bondholders to provide confidential details of the transaction with Bain Capital. Picture: Joel Carrett

Bondholders owed billions of dollars by Virgin Australia believe they can derail the sale of the airline to Bain Capital with a “superior proposal” at next month’s creditors meeting.

Their ambitions were laid out at a Federal Court hearing on Friday, at which two large bondholders sought to gain access to confidential details of the sale agreement signed by administrators Deloitte with Bain.

Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management together hold $300m in unsecured notes issued by Virgin Australia.

They are among 30 institutional bondholders and 6000 mum and dad investors owed a total of $2bn.

The court heard the bondholders wanted to put forward an alternative deed of company arrangement that improved the return to creditors and ensured the future viability of the company.

In order to do so, they needed access to details of the sale transaction with Bain which was deemed confidential by the same court a week ago. “It should be uncontroversial that we have the right to do that,” the bondholders’ barrister Ian Jackman said.

“Your Honour would’ve seen my clients did in fact make an offer on June 24, and Your Honour would’ve seen a demand from the administrators for an extremely large amount of cash ($625m) to be provided within 24 hours across international borders, which simply couldn’t be met in the time frame imposed upon us.”

He said bondholders were concerned that the administrators thought the Bain transaction could not be voted down by the creditors’ meeting. He related an exchange with senior administrator Vaughan Strawbridge, who said “the vote of the meeting would not effectively change the outcome of the sale”.

“That does raise questions in our mind exactly how the Bain deal is structured,” Mr Jackman said. “We are confused as to how the administrator, no doubt with advice, has come to the conclusion that it is a fait accompli and whatever happens at the second meeting can’t change the asset sale to Bain.”

For that reason he said it was necessary his clients understood the structure of the sale transaction with Bain.

Judge John Middleton suggested to Deloitte’s barrister, Dr Ruth Higgins, that it was perhaps a case of “a process had been entered into lawfully, and everybody had to live with that”.

“That’s putting it bluntly,” replied Dr Higgins.

“In any event, (the bondholders) would receive a report to creditors and that’s the ordinary means by which creditors receive information that facilitates their ability to put together an alternative DOCA. What does not happen is early access to the totality of confidential transaction documents.”  Judge Middleton responded that not providing enough information could leave the administrators open to litigation, if creditors felt they were not well enough informed to make a decision. “One has to look at where we’re leading with all this. I’m looking at the interests of the creditors primarily at the moment,” Judge Middleton said.

Although he did not grant the bondholders’ application for access he put the administrators on notice to provide as much information as possible beyond “commercially sensitive” material.

“I’m advocating for as much communication to alleviate people’s concerns but, more importantly, to gather all the information and all the options that will be available for the second creditors’ meeting and that’s the important thing,” Judge Middleton said.

He invited the bondholders to take further court action if they were not satisfied with the information provided.

A spokesman for the bondholders described the hearing as an “important step forward” that would allow them to put their proposal to creditors after getting the information they’d been seeking.

“We look forward to engaging with the administrators in this regard as well as with other Virgin stakeholders to present the recapitalisation plan which we believe is in the best interests of Virgin employees, stakeholders and creditors, including the thousands of Australian bondholders and institutions that have already invested $2bn in Virgin Australia,” he said.

A spokesman for Deloitte declined to comment.

The second creditors meeting is set down for August 22.

Virgin Australia went into voluntary administration on April 21 with debts of $6.8bn.