Richard Branson stays in Virgin Australia race

Virgin Group founder Sir Richard Branson is circling the next stage of the sales process for the embattled airline.

Virgin Group founder Sir Richard Branson is circling the next stage of the sales process for the embattled airline, with strong links to at least two of the short-listed parties now in discussions with administrator Deloitte’s Vaughan Strawbridge.

While Sir Richard is not a bidder for Virgin he has strong connections with short-listed Bain Capital as well as New York-based hedge fund Cyrus Capital Partners — two of the four candidates that emerged as the short-listed parties on Monday as the sales process moves into its second stage.

Cyrus Capital Partners enjoyed a profitable deal co-investing with Sir Richard in Virgin America dating back to 2005, which was sold to Alaskan Airlines in 2016, a profitable deal for both parties.

More recently, Cyrus and Sir Richard’s Virgin Atlantic have been involved in a much less successful deal, buying into British regional airline Flybe last year, which went into administration in March after talks on a financial rescue package from the Johnson government failed.

Bain Capital has a joint venture in the cruise industry with Virgin Voyages.

Sir Richard could link up with Bain Capital or Cyrus if either emerges as the leading contender to buy Virgin.

Sir Richard also has had strong links in the past with former Wesfarmers executive David Baxby, who was working with the Brookfield consortium that has dropped out of the bidding process.

“Richard wants to be in there somewhere,” one observer told The Australian on Monday. “He wants to link up with whoever looks like winning.”

Sir Richard’s Virgin Group had some 10 per cent of Virgin Australia before it was placed in voluntary administration on April 21 with debts of almost $7bn.

The Virgin group has a vested interest in having ties with the winning bidder if it retains the Virgin brand. Virgin receives $15m in fees a year from Virgin Australia for the right to use the Virgin brand.

The other two short-listed bidders that emerged on Monday are BGH Capital and the $170bn AustralianSuper, which have worked together in the past on several deals, and are selling their “Team Australia” brand, and US-based Indigo Partners.

The short list was finalised on Monday as Moody’s Investor Service downgraded Virgin Australia’s credit rating deeper into junk territory, from “Caa” to “Ca”.

It said the rating action was prompted by Virgin missing a coupon payment on May 15 on $US425m worth of bonds after going into voluntary administration a month earlier.

The weekend process saw shifting sands in the list of potential bidders.

It is understood that BGH Capital, which had been considered a leading bidder, only signed a confidentiality agreement on Monday, allowing it to move to the next stage of the sale process.

The Australian understands that the consortium had been holding out on signing the document, believing it had preferred status in the process.

BCG, whose principals include Ben Gray and former Macquarie Group banker Robin Bishop, has had a team of 40 people working on the deal for more than six weeks after being given early access to the data room in relation to a potential emergency capital injection into the airline before Virgin went into administration, which never happened.

But Deloitte’s Mr Strawbridge had been adamant that the short-listed parties had to sign the agreement and BGH only made the list after agreeing to his request.

He said on Monday the agreement prevented the four next-stage bidders disclosing inside information they would be given about Virgin or discussing bidding information between themselves.

“It’s around making sure we have the competitive tension there,” Mr Strawbridge told The Australian.

“It is not in our interest to have the (short-listed) parties speaking to each other.”

Canadian infrastructure investor Brookfield, which surprisingly dropped out of the race, has not ruled out returning to the sales process, but not under the current structure being run by the administrator which saw Brookfield withdraw its bid on Sunday night.

Considered one of the leading contenders to buy Virgin, Brookfield had been pushing hard for administrators Deloitte to take only two parties through to the next stage of the process.

It made the demand a make-or-break condition of its initial non-binding bid.

A source close to the group said while it had spent a lot of time and money on the process, it did not believe the way it was run was conducive to a successful outcome for the airline or its new owner.

“The big value drivers are the creditors, including the 65 lessors, five unions and a host of others,” the source said.

“In order to create any value at all you need to work with them to come up with a sustainable structure. That can only happen on May 29, with binding bids due on June 12.

“To Brookfield it just felt like running head long into a wall with that process.’’

Brookfield had also sought further certainty from administrators about how they would fund the airline if its $100m in cash ran out before the sale process finalised at the end of June.

“They are open to being persuaded back in, but that would have to be in a way that allows discussions with the major creditor groups to start immediately and there is a timeline that you can get to a binding June 12 bid, not sitting through management presentations for the next week,” the source said.

Transport Workers Union national secretary Michael Kaine said it was in the interests of all Virgin workers that the all serious bidders were able to engage with the sales process.

“We also note that significant potential buyers such as Brookfield have raised concerns with the process,” he said.

“It is in the interests of all Virgin workers that all potential serious bidders urgently engage within the administrator’s process. Our focus remains on working with serious bidders who can engage with the workforce to see Virgin back to health as a genuine sustainable second Australian airline.”

The administrator received around nine “non-binding indicative proposals” for Virgin on Friday, with at least one of the four short-listed parties emerging late in the process.

“We received more interest than anticipated, from parties who are eager to be part of the future of Virgin Australia,” Mr Strawbridge said.

Mr Strawbridge said he understood that “some parties will be disappointed they have not been invited to continue their interest”.

“We hope they will respect our decision, which is predicated on the business continuing and achieving the best outcome for all people impacted,” he said.

While the administrator has not confirmed any names of the short-listed parties, he has now begun a process that will see them having discussions with Virgin management later this week.

He said next week the administrators would start having engagement with other stakeholders such the unions to allow the short-listed parties to make a binding bid by June 12.

“It is quite a detailed process we have to go through over the next four weeks to be able to get to the next stage,” he told The Australian in an interview.

“The bidders will receive management presentations and a lot more detailed information.”

But Mr Strawbridge said he would not object if any of the indicative bidders that might have dropped out of the process decided that they wanted to link up with other finalists as the process went on.

“We have been fairly open with the fact that we want a successful process and we want to get an outcome,” he said.

“If they (a bidder which has dropped out of the process) decided to join up with one of the short-listed consortium it is up to them.

“As long as it is done in an appropriate way, we have no issues with that whatever.”

Separately documents released in the Federal Court on the weekend revealed the nation’s top airports expressed concerns last week to the administrators about whether they were seeking to be relieved of Virgin’s previous financial obligations to the airport owners after the airline collapsed.