Virgin bond holders ‘increasingly anxious’, retirement savings at risk: Morgans

Thousands of retail investors in Virgin Australia bonds are becoming ‘increasingly anxious’ about their investment.

Virgin Australia aircraft seen parked on the tarmac at Brisbane International airport. Picture: AFP

Thousands of retail investors in Virgin Australia bonds, including mums and dads and retirees, are becoming “increasingly anxious” about their investment in the airline, according to stockbroker Morgans.

Morgans’ Brisbane-based director Steven Wright told The Australian on Monday that the retirement savings of many small investors in Virgin notes issued last November were now at risk after the airline went into administration on April 21 with debts of almost $7bn.

Morgans, Australia’s largest full-service stockbroker with a strong client base in Queensland, where Virgin is headquartered, has more than 500 investors in Virgin including many who bought ASX-listed notes issued by the company last November.

“Our clients are just a small proportion of the thousands of retail investors from right across Australia who invested in Virgin Australia notes,” Mr Wright said.

“They are growing increasingly anxious.

“In most cases we are talking typical mums and dads with retirement savings at risk. We are watching this closely.”

The retiree investors around Australia are among unsecured bond holders with almost $2bn in exposure to Virgin.

They now risk losing most of their investment despite interest from two bidders, Bain Capital and New York hedge fund Cyrus, which are in talks to buy the airline.

Most of the Morgans clients who bought into the Virgin fundraising last November have individual investments of up to $50,000.

The Virgin notes issue was heavily supported by thousands of retail investors, particularly from Queensland, given its Brisbane base.

But as administrator Deloitte’s Vaughan Strawbridge continues talks with the two short-listed bidders this week, the small mum and dad note holders are becoming increasingly worried they could be left out of crucial talks that will affect their investments.

Short-listed bidders

The two short-listed bidders only have two weeks to lodge final binding bids for Virgin, with the preferred bidder to be announced by the end of June.

With strong interest in the process from unions, which are focused on the long-term employ­ment of Virgin’s 9000 staff, there are now competing pressures among creditors.

Bond holders want the highest offer while unions having a strong interest in seeing a buyer that will retain most of the airline’s staff.

The unions have been vocal about their case but so far the small investors have kept a low profile.

Virgin’s staff are the major creditors by number, while bond holders have the largest economic exposure to the airline.

Morgans’ clients are angry that their investments are now at risk after being prepared to back a plan by Virgin chief executive Paul Scurrah to return the airline to profitability only months ago.

Administrator Vaughan Strawbridge told The Australian in an interview after his appointment that Virgin would not have been in administration had it not been for the almost complete shutdown of its fleet in the wake of the coronavirus pandemic.

But now the airline has unexpectedly gone into administration, the small investors in Virgin notes face the loss of most of their money unless some longer-term deal can be struck with the buyer.

“Every one of these investors were prepared to back management’s plan,” Mr Wright said.

“They should not be forgotten in the administration process.

“We believe in the airline. We were prepared to back Virgin when asked and now face the very real possibility of not being part of its future.”

Small investors

He said the small investors now faced “seeing little or no value assigned to the debt owed to them”. Mr Wright said the position of the bond holders needed to be “the priority in every decision and action taken by the administrator”. But Mr Strawbridge has already acknowledged that there are many different stakeholders in Virgin as he negotiates with the final two bidders.

The state governments of Queensland, which has already offered to put $200m towards a bidder who will continue to base the airline in Brisbane, and NSW, which would like to see Virgin move its headquarters to a site near the new airport in western Sydney, are also believed to be in talks with the two short-listed bidders. The bond holders are hoping to discuss their situation with the two bidders, which began intensive talks with the administrator after being short-listed last week.

One option which has been raised by some advisers is note holders remaining as longer-term holders in the airline, potentially for the same period as the notes, under the new owner, rather than being paid only a few cents in the dollar in a deal struck while Virgin is at a low point. Mr Wright said Virgin’s small investor noteholders would “continue to work closely with other bond holders and are committed to ensuring we get a fair outcome”.