Oaktree, Etihad team up in Virgin Australia rescue battle

Etihad is said to have combined with Oaktree in the Virgin Australia rescue battle Picture: AAP

Expectation is building that global private equity fund Oaktree Capital Management is partnering with Middle Eastern airline Etihad in the competition to rescue failed carrier Virgin Australia out of voluntary administration.

It is also understood that Bain Capital, which counts former Jetstar boss Jane Hrdlicka as an adviser, has also been part of the group. But it is now thought that Bain, which Ms Hrdlicka had also previously worked for, may no longer be with that consortium after it was earlier identified as a potential Virgin Australia contender.

The early stages of the contest for Virgin so far remains fluid and somewhat of a game of musical chairs when it comes to the formation of consortiums.

Macquarie has teamed up with Brookfield in the past to buy the West Australian-based Quadrant Energy business and the pair are joining up again for Virgin, but Macquarie could have a role that ranges from advisory through to writing a limited or large equity cheque.

Earlier, it was thought that Wesfarmers was part of that consortium, but some say the Perth-based conglomerate has since taken a back seat, while US airline investor and suitor Indigo Partners could join the consortium.

DataRoom understands that Wesfarmers looked at buying Virgin Australia about 18 months ago, when former Virgin Group co-chief executive David Baxby was an executive.

Mr Baxby, who is also a former Virgin Australia director, left Wesfarmers in March.

Wesfarmers would no doubt be attracted to the Virgin Velocity frequent-flyer business, with which it could merge its Flybuys points program.

BGH Capital, advised by Moelis and law firm Arnold Bloch Leibler, is working with other parties, and one thought is that the fund partners with TPG Capital, of which founding partner Ben Gray was the former Australian head.

TPG is one of the few global buyout funds with strong credentials in the aviation space, making a small fortune through a turnaround job on Continental Airlines in the 1990s and investments in American West Airlines and Ryanair.

Mr Gray is understood to have a good relationship with TPG, where he worked when he made a takeover bid for Qantas in 2006 as part of a consortium with Macquarie Group.

Estimates of the price that could be achieved for Virgin Australia range between $2.5bn and $4bn.

Last week, administrator Deloitte said eight parties had signed nondisclosure agreements, while 20 groups had expressed interest in the carrier ahead of the June 30 sale deadline.

The company owes creditors $6.8bn. This includes $2bn to unsecured bondholders, a large proportion of whom are represented by advisory firm Faraday Associates, headed by former Goldman Sachs and Lazard banker Lachlan Edwards, and law firm Corrs Chambers Westgarth.

The bondholders could buy the airline, say experts, or their debt could be sold to a party that winds up as the owner.

King & Wood Mallesons is in the corner of some secured lenders, while K&L Gates is said to be in the mix.

Groups such as Cerberus Capital Management and Singapore Airlines backer and sovereign wealth fund Temasek are reportedly considering a Virgin Atlantic recapitalisation, so they may emerge for the Australian counterpart, along with distressed investor Lone Star Funds.

Interest from US-based opportunistic credit funds could wane if the auction becomes competitive.

But despite lots of early interest, the thinking is that only a party with strong industry expertise can carry out a lucrative turnaround on what has been mostly a loss-making airline.

Many are doubtful that wealthy Australians — such as Andrew Forrest, who is said to be looking at Virgin — wind up as the airline owners.

Other Australian magnates that could emerge are Chris Corrigan and Gina Rinehart as well as Lindsay Fox, while government-backed groups such as Queensland Investment Corporation or a major airport could surface at a later stage.