Virgin Australia bondholder standoff a ‘bid for money’

The stoush between Virgin Australia’s new owner and bondholders has taken an ugly twist as accusations fly.

Virgin Australia faces more time in administration if creditors vote against the sale to Bain Capital on September 4. Picture: AFP

The stoush over Virgin Australia’s future has taken a bitter turn with new owner Bain Capital revealing two key bondholders offered to abandon their rival proposal if the US private equity firm paid them enough.

Bain Capital signed a binding agreement to buy Virgin Australia on June 26 and has been financing the troubled carrier since then.

However, bondholders Broad Peak Investment Advisers and Tor Investment Management persisted with their own proposal to recapitalise the airline in order to ensure themselves a better return on their $300m investment.

Virgin Australia was placed into voluntary administration on April 21 with debts of $6.8bn.

When administrator Deloitte refused to consider the bondholders’ proposal or put it to creditors for a vote, Broad Peak and Tor took the matter to the Federal Court.

Their application was rejected and on Friday the bondholders announced they would withdraw their proposal which they insisted remained a “superior outcome” for the airline and its stakeholders.

This was welcomed by Bain Capital which said the decision to withdraw “publicly acknowledged that their proposal was incomplete and unable to progress”.

“This is not unexpected, as they had previously suggested behind closed doors that they were willing to abandon their disruptive efforts in exchange for a much smaller recovery than the asserted value of their proposal, that would apply just for themselves,” a Bain Capital spokesman said.

“Bain Capital believes that all creditors should be treated fairly and similarly situated creditors should be treated equally.”

A bondholders’ spokesman retaliated, telling The Australian that their objective had always been to secure a fair return for all 6000 bondholders.

“We look forward to Bain Capital disclosing the terms of its secret deal with the administrator and would encourage the information to be released at the earliest opportunity to remove uncertainty for all stakeholders,” he said.

Administrator Vaughan Strawbridge welcomed the bondholders’ decision to withdraw, telling Virgin employees it meant they could “continue to focus on our binding agreement with Bain Capital”. “I know this has been an uncertain time for everyone and I’m grateful to the work of everyone across the business in getting us to the final stages in this process,” Mr Strawbridge said.

The airline’s 10,000-plus creditors, including bondholders, aircraft lessors and employees, will on Tuesday when the administrator’s report is released, learn how much they can expect to get back as a result of the Bain deal.

On June 30, a statement by Deloitte to the ASX warned that there “would not be sufficient recoveries to pay creditors in full”.

Bondholders feared they could get as little as 10c in the dollar.

Whether or not the second creditors’ meeting on September 4 votes in favour of Bain Capital, the firm is still destined to take ownership of Virgin Australia.

Last week’s Federal Court hearing was told that if creditors did not support Bain’s deed of company arrangement, the meeting would be adjourned and an asset sale would take place.

The Bain spokesman said creditors were encouraged to support the DOCA “to bring an end to this period of uncertainty and enable the rebuilding process to start as soon as possible”.