Commonwealth Bank shows interest in funding Virgin Australia refinancing

Virgin staff Alahna Wilkinson and Alice Whittle posing in front of Long Beach, 737-800 at Brisbane Airport this month. Picture: AAP

Commonwealth Bank of Australia is said to have shown some interest in funding the ongoing operations of Virgin Australia on behalf of the new owner, in the likely event that the successful bidder for the airline wants to refinance the carrier’s debt.

The revelation comes with two bidders to buy the airline due to be short-listed on Friday by administrator Deloitte, as the contest to secure ownership of the carrier, which has $6.8bn in debts, draws closer to its conclusion.

Some expect that any suitor wanting to buy the failed carrier will wish to make their own arrangements for debt for ongoing funding of the business, paying out the existing creditors and starting afresh.

Debt may also be sought for a bid as part of a proposal that some estimate could fall in the vicinity of about $4bn to take control of Virgin Australia.

The $2bn worth of Virgin bonds have been trading at about 15c in the dollar, so a suitor could pay out the bond holders and refinance the debt elsewhere at a later stage.

Any suitor might also wish to buy the bonds for strategic reasons, so they hold more influence for the creditors in any vote on a deal, although the employees are expected to have the most influence.

One source close to a bidder said the ongoing funding of the business remained “a real issue” and would likely come into sharper focus once a successful suitor was selected.

Currently, Virgin counts the ANZ and Westpac among the banks in its senior lending syndicate, providing about $200m of debt, while it has an ANZ-led syndicate providing loans for its Velocity frequent flyer operations, worth about $220m.

The understanding is that the preference of Virgin, its administrators or the bidders could be for funds from Australian lenders rather than those offshore, such as American banks, to which the airline is already heavily exposed.

Left in the contest are four final parties contending for Virgin Australia, including Indigo Partners, Cyrus Capital Partners, Bain Capital and BGH Capital.