Virgin’s creditors wait for payday

Virgin Australia’s creditors will find out on August 19 how much of a return they can expect from the airline’s new owner.

Virgin Australia administrator Vaughan Strawbridge has told creditors the sale to Bain Capital is a done deal, and no alternate offers can be accepted. Picture: AAP

Virgin Australia’s creditors have been told they will find out on August 19 how much they can expect to be paid by the airline’s new owner Bain Capital.

In a letter to creditors, administrator Vaughan Strawbridge said the sale to the US private equity firm was binding and they could not accept alternate offers.

The letter also claimed the deal with Bain presented the best outcome for those owed money by the airline, which went into voluntary administration on April 21 with debts of $6.8bn. 

The actual return to creditors would not be revealed until the administrator’s report was delivered, a week before the second creditors meeting, now anticipated to be on August 26.

Mr Strawbridge’s letter was sent on Friday, following a week of turmoil arising from a Federal Court hearing with bondholders.

Two institutional bondholders, owed $300m, had sought access to confidential details of the sale transaction with Bain Capital in order to put together their own deed of company arrangement (DOCA) for Virgin. 

Although access was denied by Judge John Middleton, the bondholders were told they had the right to put up a new offer. 

“Whatever the administrators may have conveyed to the (bondholders), there is no doubt they have the ability at the next meeting of creditors to propose a DOCA,” Judge Middleton said in his ruling published on July 15.

Mr Strawbridge did not address the court ruling in his letter, instead pointing out “on June 26, we signed binding transaction documents for the sale of the business to Bain Capital”.

“As such we are not able to accept any alternate offer for sale, and they are committed to buying the business,” he said.

Despite the sale to Bain Capital being agreed, Mr Strawbridge said the firm was still obliged to submit a DOCA by August 12 to take control of the airline.

If the DOCA was approved by creditors at the second meeting, it would “provide a better return to unsecured creditors than if the sale was completed through the asset sale transaction,” he added.

Among the undertakings made by Bain were full payment of all employee entitlements, honouring all travel credits and providing sufficient capital to strengthen the balance sheet of Virgin Australia.

The firm would also take responsibility for a $150m loan from loyalty program Velocity to Virgin Australia, and for certain existing contractual and financial arrangements of the airline.

“We are in the process of working with the Virgin Australia management team and Bain Capital to restructure the business for future operations, which are expected to be significantly progressed but not finalised prior to the second meeting of creditors,” Mr Strawbridge said.

It was understood Bain planned to reduce the Virgin Australia workforce from 9000 to between 5000 and 6000 people, and streamline the fleet to 60 to 70 Boeing 737s.

Although the firm was committed to retaining the executive management team led by CEO Paul Scurrah, there was speculation Bain consultant Jayne Hrdlicka, a former Jetstar CEO, could be appointed chairman.

On Sunday, a bondholders’ spokesman was confident the Federal Court judgment would mean administrators were obliged to put any rival proposal before creditors at the next meeting.

Bargara-based bondholder Larry Lazarides said the circular from Mr Strawbridge raised concerns.

“As Judge Middleton pronounced last week, while the administrators could promote the Bain transaction as their preferred proposal, their ‘preference for one proposal does not justify the exclusion of all other proposals from consideration by the creditors’,” Mr Lazarides said.