Options brewing for Virgin rescue plan

Last month, Virgin suspended all international flights until June and halved its domestic capacity in response to travel restrictions imposed to stop the spread of coronavirus. Picture: AAP

Restructuring experts are believed to have been brought in to assess options for Virgin Australia, with some questioning whether US-based bondholders are examining a rescue plan.

Various sources said on Tuesday that Houlihan Lokey was working with Virgin Australia, although the US advisory firm that specialises in distressed situations did not confirm it was close to the company.

Houlihan Lokey counts former UBS restructuring expert Jim McKnight as within its Sydney ranks who has worked on some of Australia’s largest and high profile corporate collapses.

The carrier is understood to have a data room open for parties to assess potential recapitalisation options.

It comes as it was revealed by The Australian on March 31 that Virgin Australia had approached the federal government for a loan worth $1.4bn.

Some believe that should the airline be unsuccessful in attempts to secure the funds from the Australian federal government, it could embark on a creditor scheme of arrangement, involving a bail-out from some US-based bond holders.

The carrier is under the spotlight as the aviation industry remains in turmoil due to the coronavirus and the extent of the damage depends how long the health crisis continues.

Virgin Australia is buckling under adjusted net debt of $5bn when its market value is only $675m and it posted an $88.6m half-year loss.

Its bonds have been trading between $30 and $40 only months after investors took up the offer.

Investment bank UBS assisted Virgin Australia last year on its bond raising, which secured $325m to help pay for its $700m acquisition of the remaining 35 per cent stake in the Velocity frequent-flyer program that it did not own.

Last month, Virgin suspended all international flights until June and halved its domestic capacity in response to travel restrictions imposed to stop the spread of coronavirus.

The drastic reductions saw the equivalent of 53 aircraft grounded across the Virgin and Tigerair fleet, and surplus staff managed with paid or unpaid leave, and in some cases redundancies.