Fitch downgrades Virgin Australia credit rating to D

Credit rating agency Fitch has downgraded Virgin to the lowest rating possible in expectation of creditors taking a haircut.

Virgin Australia CEO Paul Scurrah and administrator Vaughan Strawbridge of Deloitte. Picture: John Feder

Virgin Australia has hit rock bottom in the eyes of credit rating agencies, with Fitch downgrading the airline to D from CCC- following the appointment of administrators.

D is the lowest rating on the Fitch scale, and follows similar moves by S & P Global and Moody’s in response to the company’s move into voluntary administration.

Fitch primary rating analyst Kelly Amato said Virgin Australia’s balance sheet would be restructured as part of the process of administration and “creditors will likely be required to take a haircut on its outstanding debt” of more than $5bn.

“Our downgrade of Virgin Australia’s rating to ‘D’ reflects the increased probability of this occurring,” Ms Amato said.

“Once the airline exits the administration proceedings, we will assess its new strategy and restructured financial profile and re-rate Virgin Australia accordingly.”

Speaking on ABC radio, Deloitte administrator Vaughan Strawbridge said his primary duty of care was to get the best possible result for all creditors.

“There is a possibility of a certain class of creditors taking a haircut which is normally unsecured creditors and in that case then there would be no value in the equity if the creditors are not paid in full,” Mr Strawbridge said.

“Around what can be done in the voluntary administration process, it’s about creating optionality for those parties who are interested so that they’ve got the greatest level of flexibility in constructing the make up of the airline going forward. It is out intent to create that flexibility.”

He said the most desirable outcome was a buyer who would take on the majority of the airline’s assets including aircraft and employees, “to have a restructured full service airline coming out the other end”.

Already Virgin Australia had run a process whereby 1300 people had been made redundant from the workforce, as part of the business strategy, Mr Strawbridge said.

“They had already started the process of, in Paul (Scurrah’s) words ‘turning a great airline into a great business’, and they had detailed plans in place of achieving that objective,” he said.

Virgin’s creditors will meet at the end of April.