UBS, Credit Suisse, Morgans, Deutsche Bank on board Virgin tilt, say bondholders

Bondholders boast of heavyweight backing in their battle to derail the sale of Virgin Australia to Bain Capital.

Virgin Australia plans to relaunch with a much smaller fleet once it emerges from administration. Picture: AFP

Two key bondholders seeking to derail the sale of Virgin Australia to Bain Capital claim to have won the backing of more than a dozen large financial institutions and aircraft lessors.

Documents filed in the Federal Court named 13 other institutions that had indicated their support for the development of an alternative proposal for the airline, including UBS, Credit Suisse, Morgans, Deutsche Bank and Mutual Limited.

At least 60 other bondholders were also in favour, and aircraft lessors who own 15 Boeing 737s used by Virgin Australia had contacted the bondholders to discuss their proposal.

The airline went into voluntary administration on April 21 with debts of $6.8bn, including $2bn owed to bondholders.

An affidavit from Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management, was part of an application to the court seeking orders for their proposed deed of company arrangement (DOCA) to be voted on by creditors.

Their application also sought access to Virgin’s existing bankers, management and employee unions to gather more information about the airline’s arrangements.

Under the bondholders’ vision, Virgin would return as an ASX-listed company with all noteholders to receive equity in satisfaction of their claims.

The matter will be heard by Judge John Middleton on Monday, in a hearing that could have a significant bearing on the sale of Virgin Australia to Bain Capital.

The US private equity firm signed a binding agreement with administrators Deloitte in June to buy Virgin, and provide financial support until the transaction was completed.

For that reason, Deloitte said it was unable to consider other proposals or put them to creditors as an alternative to the Bain DOCA at the second meeting next month.

“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,” said a statement issued by Deloitte.

On Tuesday Bain Capital shot down the bondholders’ proposal, referring to it as “incomplete, lacking credibility and not capable of progressing”.

A spokesman for Bain also revealed that Broad Peak and Tor had wanted to do a “side deal” with the US private equity firm, in an apparent effort to get a better return on their $300m investment.

However a spokesman for Broad Peak and Tor said their objective had always been to seek a fair recovery for the unsecured bondholders.

“We are sure bondholders and other creditors would welcome a serious, good faith discussion with Bain Capital to structure a solution that provides unsecured creditors the value that’s rightfully due to them and recognises the significant inherent value in the business as outlined in our proposal,” he said.

“We have consistently maintained that the bondholders have no intention of controlling or running Virgin Australia. Rather, the airline will be listed on the ASX and governed by an independent board and owned by shareholders, many of whom are ‘mum and dad’ investors.
“We are committed to a recapitalised Virgin Australia for the long term.”

He said they had been heartened by support for their proposal from a wide range of Virgin stakeholders “not just the bondholders”.

“We look forward to working constructively with (the administrators) to finalise a proposal that we firmly believe will result in the best return for all creditors and employees, and has the highest prospect of success in being approved at the second creditors’ meeting,” the spokesman said.

The administrator’s report to creditors is expected to be sent out in late August ahead of the second creditors’ meeting on September 4.