Virgin Australia silent on plans to restructure its debt

Virgin Australia’s proposed restructuring plan is understood to have involved a convertible note provided by the government Picture: AAP

Despite expectations that Virgin Australia would offer an update on its debt restructure proposal by Wednesday night, the market was kept hanging.

Yet some say that if the federal government does not come through with a loan for the carrier, one thing for sure is that no “Plan B” exists where loans from its $5bn-odd debt pile will be offloaded.

Virgin Australia is working with Houlihan Lokey, as well as UBS and Morgan Stanley, which both helped the airline with its bond raising in the past year.

It has recently had a data room open for parties to examine its books.

However, it was understood that a condition for parties entering the data room was that they would not then turn around and trade the debt. This ruled out the possibility of groups such as US-based funds like Anchorage Capital, Oaktree, York Capital, Varde Partners, KKR, Blackstone, Brookfield and Carlyle showing a willingness to embark on some sort of debt recapitalisation or restructure deal for the carrier.

It is understood that an equity raising is not under consideration, given that the equity in the company, which has a $726m market value, is effectively worthless.

Some believe that there is no back-up plan for the airline if the government does not offer support.

Virgin Australia’s proposed restructuring plan is understood to have involved a convertible note provided by the federal government that will convert to equity if the airline breaches its debt covenant. Total support offered by the government would be worth about $1.4bn.

The equity holders, including Singapore Airlines, Etihad, Richard Branson, HNA and Nanshan, would see their equity value completely wiped away.

Any bailout hopes by Virgin could be cut short amid strong resistance in Canberra to supporting any specific company through the coronavirus crisis over an industry-wide solution.

Involved in the debt restructure would be banks, US bondholders owed $US425m ($662m) and Australian bondholders owed $325m.

A large portion of the debt is with aircraft lease providers and secured by aircraft.