Virgin Australia bond holders challenge sale deal

Key Virgin bond holders have applied to the Takeovers Panel to challenge the ‘unacceptable’ deal to sell the airline to Bain.

Virgin Australia planes parked on the tarmac at Adelaide Airport. Picture: AAP

Virgin Australia’s $2bn unsecured bond holders have stepped up the pressure on administrator Vaughan Strawbridge of Deloitte to increase their payout, with a surprise move to appeal to the Takeovers Panel to challenge his deal to sell the airline to Bain.

The move by two key Virgin bond holders, Singapore-based Broad Peak Investment Advisers and Hong Kong-based Tor Investment Management, to apply to the Takeovers Panel to challenge the deal and force Mr Strawbridge to agree to put their own proposal to a meeting of creditors late next month, throws a new level of uncertainty over the sale.

If the panel agrees to consider the arguments put by the bond holders, it could take several weeks for it to make a decision — at a time when Mr Strawbridge is now working with Bain to take control of the airline and preparing for a meeting of creditors in late August.

While expectations are that the Takeovers Panel, whose role is mainly to protect shareholders in the event of an unfair takeover, will not block the deal, the bond holders’ action could put pressure on the administrator or even Bain to improve their payout as well as allowing them to put their own proposal to creditors.

A spokesman for the administrators said on Monday that the bond holders’ complaints against their handling of the process was “without merit”, arguing that the deal struck on June 26 with Bain delivered “the best outcome for all creditor groups that could be achieved in the circumstances”.

While details of Bain’s offer for Virgin have not been released, expectations are that the bond holders could receive less than 10c in the dollar from that deal.

Bain is understood to have ­offered to inject $600m cash into the airline, pay $450m in employee entitlements and pay for another $600m in travel credits.

At the moment, the bond holders will not know exactly what they will receive until Mr Strawbridge hands out the report to creditors ahead of meeting next month.

Virgin Australia administrator Vaughan Strawbridge. Picture: AAP

The bond holders — a range of about 6000 small investors and 30 large institutions — want to put their own proposal to creditors at the meeting that they argue would provide the airline with a capital injection of more than $800m, and result in Virgin returning to the ASX, giving them the potential for a return of as much as 70c in the dollar on their investments.

A statement by the Takeovers Panel said no decision had been made yet on “whether to conduct proceedings”.

“This panel makes no comment on the merits of the application,” it added.

The bond holders’ application to the panel criticises the “circumstances regarding the process conducted by the admin­istrators” as “unacceptable”, arguing that they had the effect of stopping them presenting their own deal to Virgin creditors at their next meeting.

The bond holders are also seeking interim orders from the panel to get access to information about the deal to sell the airline to Bain. Virgin went into administration on April 21 with debts of $7bn.

The Takeovers Panel could take until next week to decide if it will actually hear the case.

If it does, it could take two to four weeks from that time before it makes its final deliberation, at a time when Bain is moving to take control of the airline.

Mr Strawbridge last week formally rejected the proposal from the bond holders to recapitalise the airline, a proposal put days before he signed a binding deal with Bain to buy the airline.

In a letter written to bond holder representative Faraday, Mr Strawbridge said he had considered their proposal, for a debt for equity swap and recapitalisation, but was “unable to take it forward due to its highly conditional nature”.

He said their proposal lacked certainty and there was “no evidence of committed funding” for their deal.

Mr Strawbridge said he understood that the proposal put forward by the bond holders, which would include a “significant capital injection required” to fund Virgin and to pay any entitlements for staff who would be made redundant, would need to be funded from “new funds raised from bond holders”.

But he said the administrators had not seen any evidence from the bond holders of any funds unconditionally committed for this propose.

Mr Strawbridge said the proposal from Faraday “did not deliver any certainty or guaranteed return to creditors, nor did it actually provide any cash for a dividend to be paid to the unsecured creditors (including employees)”.

A spokesman for administrators on Monday hit out at the bond holders, saying their application to the Takeovers Panel was “without merit”.

“The administrators have undertaken a process which has resulted in the sale to Bain Capital and which provides certainty for the future of the airline and delivers the best outcome for all creditor groups that could be achieved in the circumstances,” the spokesman said.

“The administrators strongly believe this action is without merit and they will present information to the panel as required to refute all claims made by the applications.”

Transport Workers Union national secretary Michael Kaine said on Monday that the ongoing uncertainty around the Virgin sale process was not helpful to workers.

He said workers wanted the best possible deal for the airline but there were still questions about Bain’s plans, which were not helped by silence from the federal government.

The TWU has been calling on the government to extend it JobKeeper allowance for aviation workers beyond its planned closure at the end of September.

Additional reporting: Robyn Ironside