Virgin Australia bondholders go to court to disrupt sale to Bain

Bondholders have gone to court to try to have their proposal for Virgin Australia voted on by creditors.

Virgin Australia’s new owners Bain Capital have lost patience with bondholders’ attempts to derail the sale process. Picture: James Gourley/AAP

Bondholders have gone to court to try to have their proposal for Virgin Australia voted on by creditors.

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

A sale agreement was signed with US private equity firm Bain Capital on June 26 but two significant bondholders have continued to push for creditors to be presented with an alternative deal.

Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management released details of their proposed deed of company arrangement (DOCA) on Friday which they said had been shared with the administrators Deloitte.

Under their proposal bondholders would be assured of a return on their investment of up to 67 cents in the dollar, and employees would receive a seat on the board.

Deloitte quickly responded by saying they could not consider the proposal due to the legally binding agreement entered into with Bain.

In a submission to the federal court, bondholders said any creditor should be able to submit a DOCA proposal to the administrators by August 24, details of which should be published in the report to creditors.

In addition, ballot papers being sent to creditors should give them the chance to vote on any rival DOCA’s to the Bain deal, the bondholders’ submission said.

Barrister Ian Jackman for Broad Peak and Tor told a court hearing on Tuesday afternoon it was “essential the ballot that was going to be made available to creditors electronically includes our DOCA”.

“There has to be uniformity in the ballot that goes out for this process to work,” Mr Jackman told the hearing before Judge John Middleton.

“Our proposal is that our rival DOCA must be a part of that ballot in such a way as to provide a fair opportunity for creditors to vote in favour of our DOCA.”

Judge Middleton said he would hear the matter on Monday.

The court action came as Bain Capital released a strongly-worded statement accusing Broad Peak and Tor of interference and claiming their proposal had no credibility.

“Despite knowing the sale agreements are binding, certain bondholders have recently put forward a proposal for Virgin Australia,” the spokesman said.

“This proposal is conditional, incomplete, indicative, and non-binding. The proposal is not credible, nor capable of progressing.

“Stakeholders need certainty and stability, so for the sake of the airline and its employees, Bain Capital will not be distracted by it.”

He said Broad Peak and Tor accounted for only $300m, or less than 5 per cent, of the $6.7bn owed to creditors.

“These two Asian-based hedge funds are trying to frustrate the administration process by creating as much noise and interference as possible,” the spokesman said.

“They do not speak for all bondholders.”

He indicated the institutions had recently approached Bain Capital in the hope of reaching a side agreement, but the US private equity firm rejected them.

“Bain Capital believes that similarly situated creditors should be treated equally and that there should be no side deals,” he said.

“These hedge funds are offshore and specialise in high risk and high yield debt trading. They are not set up to own or provide stewardship for such a significant company such as Virgin Australia.

“They have no aviation or direct airline ownership experience together. Neither has an office in Australia.”

The bondholders are understood to be concerned they could receive less than 10c in the dollar for their investment in Virgin Australia, which they want converted to equity.

A statement to the ASX by administrators Deloitte in June suggested they did not expect to have sufficient recoveries to pay creditors in full.

Bain Capital has now taken financial responsibility for Virgin Australia in what the spokesman described as the “most challenging period the Australian aviation industry has faced”.

“Conditions have deteriorated further since the sale was agreed on June 26,” he said.

“Bain Capital’s substantial local team will continue working closely with Virgin management daily to create a stronger, more profitable and competitive Virgin Australia.”

Last week, chief executive Paul Scurrah outlined the plan for the airline in coming months and years, including a smaller workforce of about 6000 people, a reduced one-aircraft type fleet, and a tighter network.

International routes were not expected to resume for several years and the low cost carrier Tigerair would not return to the skies at all.