Virgin calls in legal experts as share price tanks

Virgin Australia is buckling under adjusted net debt of $5bn and for the half year it posted an $88.6m loss. Picture: AAP

Virgin Australia is understood to be working closely with legal experts from the law firm Clayton Utz as the airline industry awaits news as to whether it will receive government support.

It comes as Virgin Australia on Tuesday told the market that the ratings agency S&P Global downgraded Virgin Australia’s credit rating to B- on deteriorating domestic market conditions and placed the airline on Credit Watch Negative.

Virgin Australia’s shares are now at 6c and its market value at $583m.

The company said on Tuesday that it counted Clayton Utz as its long-term legal advisers.

On March 13, Virgin Australia told the market it would reduce capacity by 6 per cent for the second half of the financial year and cut costs, with rival Qantas on Tuesday telling the market that it will cut 90 per cent of international flights and 60 per cent of domestic capacity until the end of May due to the coronavirus pandemic prompting countries to shut borders.

While Virgin Australia is yet to call in any restructuring experts, many believe it faces an uphill battle in the coming months and may ultimately wind up subject to a bail out by its major shareholders, including Singapore Airlines, if the Australian Government does not first provide assistance.

The level of government involvement is also a critical question for the country’s national carrier Qantas, which may need to resort to an emergency equity raising.

Qantas currently has a market value of $4.5bn, with the group’s shares moving from around $7.40 at the start of the year to about $2.92 in Tuesday afternoon trade.

At its half-year results, it said it had net debt of $5.3bn.

Qantas said it had $1.9bn in cash on hand, $1bn in an untapped debt facility and another $4.9bn in assets unencumbered by debt.

Equity capital markets specialists say that securing investor support for an equity raising currently revolves around selling the deal as one that will see the company return to a strong performance when the coronavirus concerns ease and offering adequate information about exactly how much funding is needed to be the case.

It comes as the Virgin Australia listed bonds on Tuesday afternoon were trading at $38 after investors paid $100 each for the bonds last year.

Virgin Australia is buckling under adjusted net debt of $5bn and for the half year it posted an $88.6m loss.

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.

A challenge for Virgin remains the fixed costs it has for operational leases and asset finance on its aircraft.