New $3bn Virgin recapitalisation plan from bondholders challenges Bain

Virgin’s bond holders have submitted a draft deed of company arrangement to its administrators, outlining a $3bn recapitalisation program.

Virgin employees make up the bulk of the airline’s 10,00-plus creditors. Picture: Scott Powick

Virgin Australia’s bondholders have submitted a draft deed of company arrangement to its administrators, outlining a $3bn debt-for-equity recapitalisation program for the airline, in a bid to step up pressure for a better deal.

The $2bn in unsecured bondholders, who are still in the dark about what money they will get from the deal to sell the airline to Bain Capital, are pressing the administrators to allow them to be able to speak with Virgin staff representatives and other creditors including aircraft lessors to develop an unconditional proposal to be put to a meeting of creditors on August 26.

The bondholders’ debt-for-equity proposal, which would see the company relisted on the ASX with debt converted into Virgin shares, is aimed at challenging a deal by the administrator, Deloitte’s Vaughan Strawbridge, and private equity fund Bain Capital to buy the airline, signed on June 26.

The deal will be part of a proposal to be put to creditors by Strawbridge at their next meeting at the end of August.

A spokesman for the bondholders said on Monday that the group “firmly believed” their proposal “represented the best option for Virgin Australia, its employees, creditors, stakeholders and the Australian community”.

He said the bondholders had the “funds and the ability” to implement their proposal.

The bondholders wanted to start talking with Virgin management, unions, lessors and other stakeholders this week.

“We are seeking to work co-operatively and constructively with the administrator and believe that Deloitte is well placed to assist with access to stakeholders and information ahead of the second creditors’ meeting in August to enable the deed of company arrangement (DOCA) to be finalised,” the spokesman said.

A spokesperson for the administrators said they had received a proposal but would not be making further statement on it “for now.”

The debt-for-equity proposal includes a proposed $125m cash injection and a debt for equity swap which would see Virgin’s $2bn in unsecured creditors end up with shares in a listed Virgin.

The bondholders, which include some 5500 small investors and retirees, many of them in Queensland, as well as some 30 larger investors, are worried they could end up receiving next to nothing from the Bain proposal.

Mr Strawbridge rejected an initial proposal by the bondholders in favour of a binding offer by Bain in June. But he will now need to make a decision on how to handle the draft proposed DOCA.

Bain is due to make its formal DOCA proposal to the administrator on August 12 which should include details of how much it proposes to give to the bondholders.

But the bondholders are not set to learn how much they will get until they are given a formal report by the administrators, schedule to be delivered on August 19, ahead of their meeting on August 26.

Federal Court

The bondholders have been unsuccessfully petitioning the Federal Court to be told how much they could expect to be given by the Bain proposal with the administrators arguing in court that the details are “commercial in confidence”.

They fear the late release of information is designed to keep them in the dark for as long as possible to minimise their time for lobbying action ahead of the August 26 creditors’ meeting.

Deloitte argues that the bid by Bain is the best for all the creditors of Virgin, which went into administration on April 21 with $6.8bn in debt, including the unsecured bondholders.

In a letter to creditors on Friday, Mr Strawbridge said the proposal by Bain would “provide a better return to unsecured creditors than if the sale (were) completed through the asset sale transaction”.

“We concluded that the Bain Capital offer was the best offer received,” Strawbridge said.

He said the proposal from the bondholders was “highly conditional and contained no evidence of committed funding to enable a transaction to be completed.”

“In these circumstances, we were unable to take this proposal forward, given the lack of certainty and the level of conditionality,” he said.

The Federal Court has confirmed that bondholders will be allowed to submit their own deed of company arrangement to the creditors’ meeting in August.

But the bondholders have moved earlier to present their draft proposal to the administrator. They say they need to be allowed to have discussions with representatives of Virgin’s 9000 staff and other creditors to allow them to develop a firm proposal to the meeting.