Virgin Australia bondholders say: we’ll be back

Virgin Australia’s bondholders have pulled their proposal for the airline, but warned they may be back.

Virgin Australia aircraft parked at Brisbane Airport. Picture: Patrick Hamilton/AFP

Virgin Australia’s bondholders have raised the white flag in their fight to derail the sale of the airline to US private equity firm Bain Capital.

Two institutional bondholders Broad Peak and Tor owed $300m by the airline, had sought to have an alternative proposal put to creditors for a vote at the second creditors meeting next month.

Under their plan, the $2bn owed to bondholders collectively would be converted to equity in the carrier and the company relisted on the ASX without the need for a sale.

But a Federal Court hearing on Monday ruled against the bondholders, clearing the way for Bain Capital to complete their deal with administrators Deloitte.

On Friday, a spokesman for the bondholders said they acknowledged the Federal Court’s decision and were “undoubtedly disappointed”.

“Australia deserves a strong second airline and we genuinely believe our recapitalisation proposal is the best long-term option for Virgin Australia and its stakeholders,” the spokesman said.

“It represents a superior outcome for all stakeholders and maximises the return to creditors, which is the primary objective of the voluntary administration process.”

He said it was clear many large institutional as well as retail creditors supported their proposal, for which they were thankful.

“Unfortunately for now, we are left with no choice after the Federal Court decision but to withdraw our proposal as it is not possible to complete due diligence and present a substantially unconditional deed of company arrangement to the second meeting of creditors,” said the spokesman.

But he flagged the possibility of further court action if the return to bondholders was significantly below expectation.

“After the release of the administrator’s report (on August 25), we reserve our rights to take whatever action is necessary to protect our interests as creditors,” he said.

Although the bondholders behind the proposal were Asian-based institutions, their bid was advised by five former Virgin Blue executives including co-founder Rob Sherrard.

The airline’s original CEO Brett Godfrey was not involved in the bid.

Under Bain, Virgin Australia was expected to emerge from administration as a much leaner airline with a workforce of about 6000, down from 9000, and a fleet of up to 70 Boeing 737s.

Initially the carrier would focus on a tight domestic network but was expected to eventually expanded to international services to countries such as New Zealand, Indonesia and Fiji.

Bain remained committed to offering business as well as economy class for passengers, with Virgin Australia’s lounges at major domestic airports expected to eventually be reopened.

The airline went into voluntary administration on April 21 with debts of $6.8bn owed to more than 10,000 creditors including over 9000 employees.

Prior to administration, CEO Paul Scurrah made eight approaches to the federal government for assistance of up to $1.4bn to help the airline survive the COVID crisis.