Virgin Australia unsecured creditors push for greater power; gain data room access

Unsecured creditors risk losing almost all their money unless they can gain more traction in the negotiations.

At the moment, the unsecured creditors risk losing almost all their money unless they can gain more traction in the negotiations currently going on between the administrator and the two short listed bidders. Picture: Lyndon Mechielsen

Representatives of Virgin’s unsecured bond and note holders, who are owed around $2bn, have been allowed to access the airline’s data room by administrator Deloitte’s Vaughan Strawbridge in a move which could potentially give them greater negotiating power over the airline’s future.

The Australian understands the group, represented by advisory firm Faraday, has been invited by Mr Strawbridge to have access to sensitive commercial information about Virgin which would give it more context to assess the nature of the bids offered by short-listed parties, Bain Capital and New York hedge fund Cyrus.

It would also give it more negotiating power to propose other options, including a potential recapitalisation of the airline which could see the note and bond holders continue to remain as creditors for the life of their current bonds, some extending out to 2024, rather than losing most of their money now, and having to do a deal when Virgin is at a low point.

Faraday represents the biggest group of unsecured creditors, ranging from more than 5000 “mum-and-dad” retail investors to about 30 major institutional bond holders.

The unsecured bond holders, some of whom invested in a $325m note raising launched by Virgin last November, are worried they could lose almost all their money in the current negotiations unless they can take a more proactive stance in negotiations.

Some Virgin notes are now trading at around 15-20c in the dollar.

The bond holders argue that Virgin’s fortunes are already turning around with the removal of travel restrictions around Australia and the increase of flights announced on Thursday, a move which should see the note holders being able to get a better deal.

Some 19 potential bidders were given access to the data room after Mr Strawbridge was appointed as administrator on April 21.

The process has gone through several rounds, with interested parties now down to two.

It is believed the bond holders were not among the initial 19 parties given access to the data room in May.

Representatives of the bond holders met with Virgin administrators on Thursday to get an update on the negotiations and the financial state of the airline.

Mr Strawbridge has given the two final bidders until June 22 to submit final binding bids for the airline.

He has said he will then make a decision on the preferred bidder by June 30.

Mr Strawbridge will put a proposal to the next meeting of creditors which has to be held by August 22.

But with such a tight timeline for the sale process, the bond holders are believed to want to have more influence now in the sales process and over what options might be available to them to help save as much of their investment as possible.

The news about their access to the data room comes after Mr Strawbridge this week asked the federal government for a series of assurances including a possible extension of the JobKeeper wage subsidy program for Virgin workers by six months, a federal government guarantee of Virgin tickets and an extension of other government funding until the end of the year.

He said this was necessary to provide assurances to the two bidders or the sales process risked being undermined by too many uncertainties.

At the moment, the unsecured creditors risk losing almost all their money unless they can gain more traction in the negotiations currently going on between the administrator and the two short listed bidders.

A spokesman for Faraday declined to comment when approached by The Australian on Thursday but The Australian understands that the group has been invited into the data room.

Deloitte allowed about 19 potential bidders access to the data room after it was appointed administrator to Virgin on April 21.

A spokesman for Deloitte would not comment.