Virgin Australia’s credit rating downgraded to a D by S&P Global, following freeze on creditor payments

The D rating by S&P Global also reflects Virgin Australia’s filing of a Chapter 15 bankruptcy petition in the US.

Grounded Virgin Australia planes at Melbourne Airport. Picture: AAP

Virgin Australia’s credit rating has been downgraded to a D by S&P Global, following the freeze on creditor payments while the company is in administration.

Australia’s second biggest airline group went into voluntary administration last month, with $6.8bn owing to up 12,000 creditors.

The first creditors meeting was held on Thursday, with the next set to be postponed until August 22.

Administrator Deloitte announced that the company would not pay its next coupon payment on $657m of senior unsecured notes on May 15, due to a moratorium on all creditor payments.

S&P analysts Joel Yap and Craig Parker said they considered the payment moratorium to represent a default.

“We expect that unsecured lenders will be forced to accept less value for amounts owing under the terms of the existing unsecured debt facilities as part of the anticipated debt restructuring and recapitalisation process,” said the analysts.

The D rating also reflected Virgin Australia’s filing of a Chapter 15 bankruptcy petition in US courts, in an effort to have the airline’s insolvency legally recognised in the US and stop a number of aircraft being repossessed.

Without legal recognition, US creditors could commence their own recovery actions against Virgin Australia which administrators Deloitte argue would undermine the chances of a sale.

Of particular concern was four leased aircraft at Embraer Aircraft Maintenance Services at Nashville International Airport, which were at risk of being seized without legal recognition of Virgin Australia’s insolvency by the US courts.

Mr Yap and Mr Walker said the airline’s rating was expected to remain at D until the recapitalisation process was complete and outstanding senior unsecured notes had been restructured.

Other ratings’ agencies, Moody’s and Fitch have also downgraded Virgin Australia following the airline’s move into voluntary administration.

Thursday’s creditors meeting heard there were now 20 parties interested in Virgin Australia, with eight signing nondisclosure agreements to access the data room.

Indicative offers are due two weeks from today, and binding offers required in June.

Among those believed to be in the running, are private equity firm BGH Capital which previously made a play for Qantas in 2006; US-based airline investor Indigo Partners; West Australian conglomerate Wesfarmers; and mining billionaire Andrew “Twiggy” Forrest.

The Singapore Government’s investment arm and major Singapore Airlines’ shareholder Temasek is also believed to be interested, along with distressed securities investor Oaktree.