Virgin Australia appoints Houlihan Lokey for debt restructure

Grounded Virgin Australia aircraft parked at Brisbane Airport in Brisbane. Picture: AAP/ Darren England.

Virgin Australia is currently in the middle of a debt restructuring program, with Houlihan Lokey appointed by the airline for the assignment.

Sources in the market said that the carrier was moving fast with its debt restructuring plans, although it remained unclear in what shape they were taking.

But they were in the advanced stages, sources said.

It is understood that a creditor’s scheme of arrangement may be on the agenda, but the deal involves debt being swapped for equity.

A creditor’s scheme needs to be approved by the court and involves a vote, where as a deed of company arrangement requires a company to be placed into receivership or administration.

Some say that a DOCA can be preferable because it removes all unwanted liabilities and requires all parties to follow it through.

Involved in the debt restructure would be banks, US bondholders owed $425m and Australian bond holders.

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.

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 Australian 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.

The bonds were sold at $100 each and have been trading at between $30 and $40.

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.