Virgin bond holder recapitalisation plan rejected

Virgin administrator has rejected the offer by the airline’s bond holders to recapitalise it.

Virgin Australia CEO Paul Scurrah (left) and administrator Vaughan Strawbridge of Deloitte (right rear). Picture: John Feder

Virgin Australia administrator, Deloitte’s Vaughan Strawbridge, has rejected an offer by the airline’s bond holders to recapitalise it.

In a letter written to bond holder representative Faraday, Mr Strawbridge said he had considered a proposal made last week for a debt for equity swap and recapitalisation, but was “unable to take it forward due to its highly conditional nature.”

The letter follows a deal signed by Mr Strawbridge on Friday to sell the airline to Bain Capital.

The letter sent to the bond holders sent on Monday rejects their proposal, saying it lacked certainty and that there was “no evidence of committed funding” for the proposed deal.

Mr Strawbridge said he understood that the proposal put forward by the bond holders, which would include a “significant capital injection required” to fund Virgin and to pay any entitlements for staff who would be made redundant, would need to be funded from “new funds raised from bondholders”.

But he said the administrators had not seen any evidence from the bond holders of any funds unconditionally committed for this propose.

Mr Strawbridge said he had received an email from one of the bond holders last Thursday “making only a very preliminary approach to discuss a potential sale or recapitalisation opportunity”.

This followed his receipt of two legally binding bids for the airline last Monday from Bain and New York hedge fund Cyrus.

Mr Strawbridge said the proposal from bond holder representative Faraday last week “did not deliver any certainty or guaranteed return to creditors, nor did it actually provide any cash for a dividend to be paid to the unsecured creditors (including employees)”.

He said Deloitte would be detailing the amount of funds which could be returned to creditors in a report to credits before the next scheduled meeting at the end of August.

He also said he would “continue to engage” with representatives of the bond holders as the administrators continued their financial investigations and prepared their report to creditors.

The bond holder proposal made last week set out a plan to recapitalise the airline and have it return to the ASX as a listed company.

Mr Strawbridge, wrote to the bond holders on Monday rejecting their debt for equity proposal which would have seen the bond holders inject some $800 million into the airline.

The bond holder proposal would have seen the bond holders get a possible 70 cents in the dollar for their investment in the form of shares issued in the airline.

Representatives of the $2 billion in unsecured bonds and notes have been concerned that they will only get a few cents in the dollar from their investment as a result of the Bain deal.

The details of the Bain deal have yet to be made public.

While the deal means that Virgin’s shareholders will not receive any money, Mr Strawbridge said that the amount left over for bond holders would depend on decisions to be made over the next few weeks on issues such as aircraft leasing.

Bain is understood to have offered to inject some $600 million in cash into the airline, pay some $450 million in employee entitlements and pay for another $600 million in travel credits.

This will be in addition to assuming other liabilities such as bank debt and aircraft leases.

There are some 6,000 retail investors who have money invested in Virgin bonds alongside another 30 global institutions.

Virgin has some $7 billion in debt including some $2 billion in unsecured bonds and notes.

The airline has been in administration since April 21.