Virgin's rebel bondholders bail out, leaving Bain to take control

The consortium of rebel bondholders vying for control of Virgin Australia has pulled the plug on their 'Plan B' proposal to wrest the stick from rival Bain Capital.

Their decision paves the way for the US-based Bain to assume full ownership of the collapsed airline following a meeting on September 4 of creditors, which is expected to hand Bain the keys to Virgin Australia.

Also read: Bain's 'rescue and reboot' plan for Virgin Australia revealed

The bondholders were among the 10,000 creditors owed around $6.8 billion after Virgin went into administration on April 21, but mounted their campaign against administrator Deliotte and presumptive owner Bain Capital after concerns they would receive just 10c in the dollar against their own $200 million debt.

A spokesperson for the group said this week's federal court ruling which blocked them from presenting their own rescue plan to the creditors' meeting left them "with no choice ... but to withdraw our proposal."

"While we maintain that our recapitalisation plan represents a superior outcome for Virgin Australia and its stakeholders, we acknowledge the Federal Court’s decision. We are undoubtedly disappointed."

The bondholder proposal would have seen creditors swap their debt in the airline for equity, raise an additional $800 million to recapitalise and reboot the airline, and have it re-listed on the stock exchange instead of moving into private ownership under Bain Capital.

“Australia deserves a strong second airline and we genuinely believe our recapitalisation proposal is the best long-term option for Virgin Australia and its stakeholders," the group said in a statement.

"We believe that relaunching the airline as an Australian publicly listed company is a preferable outcome for Australia. It is clear that many large institutional as well as retail creditors agreed and supported our proposal, for which we are thankful."

However, the group's not about to go quietly.

August 25 will see Deloitte reveal more details of Bain's deal, including how much the deep-pocked investment giant actually paid for the airline and what return creditors can expect.

“After the release of the Administrator’s report, we reserve our rights to take whatever action is necessary to protect our interests as creditors," the bondholder spokesperson said.

In turn, Bain hit back at the group and repeated its earlier claim that the alternative rescue plan was merely a bargaining chip in an attempt to gain a higher return on the bondholder's unsecured investment.

Withdrawing the proposal was acknowledgement "that their proposal is incomplete and unable to progress by formally withdrawing their proposal," a Bain Capital spokesperson said.

"This is not unexpected, as they had previously suggested behind closed doors that they were willing to abandon their disruptive efforts in exchange for a much smaller recovery than the asserted value of their proposal, that would apply just for themselves.

"Bain Capital believes that all creditors should be treated fairly and similarly situated creditors should be treated equally."

Deloitte's Vaughan Strawbridge, who has been leading the administration process over the past four months, told Virgin staff via email that the bondholder's withdrawal was "welcome."

"I know this has been an uncertain time for everyone, and I'm grateful to the work of everyone across the business in getting us to the final stages in this process," Strawbridge said.

PREVIOUS [August 17, 2020] The Federal Court has denied Virgin Australia’s rebel bondholder group the opportunity to present its own take-over plan for Virgin Australia at a meeting of the collapsed airline’s creditors on September 4.

However, the court indicated it would not block any alternative proposal to that of presumptive owner Bain Capital being circulated to creditors ahead of that meeting in September.

Leading Virgin bondholders Broad Peak Investment Advisors and Tor Investments, backed by a coterie of fellow investors along with multiple aircraft leasing firms, who together are owed $800 million in total, are seeking to have their debt converted into ownership of Virgin Australia rather than accept  as little as 10c in the dollar from Bain as the US firm wipes the slate clean.

Virgin's 10,000 creditors, who are owed some $6.8 billion, are set to vote on Bain's deed of company arrangement (DOCA) in what to date was largely considered a formality.

The bondholders sought to have Deloitte ordered to list their own proposal alongside that of Bain, a move which the court rejected, although the bondholders can now propose their 'Plan B' to creditors – which includes Virgin's own employees – independently.

Virgin Australia CEO Paul Scurrah entered the fray last week, urging staff to vote as a group in favour of Bain’s blueprint.

 "I know this has a huge impact on you all personally and is unsettling," he told staff. "I can assure you that Bain Capital remains 100 per cent committed to completing the sale and enabling us to be a fierce competitor for years to come with them as our partner."

In a statement issued following the court's decision, Bain Capital said its "key focus is getting through administration to ensure Virgin Australia fights another day and has the chance to rebuild."

The bondholders have yet to formally respond to the judgement.

PREVIOUS [August 13, 2020] | Australia’s Federal Court will on Monday decide the fate of a bid by a rebel group of Virgin Australia bondholders to block a takeover by presumptive new owner Bain Capital.

The bondholders – a group of large financial institutions owed a combined $2 billion out of the collapsed airline’s $6.8 billion debt – fear they’ll receive as little as 10c in the dollar from Bain as the US firm wipes the slate clean.

Their ‘Plan B’ alternative is to have their debt converted into ownership of Virgin Australia, into which they’d funnel an additional $800 million to recapitalise the airline.

However, airline-appointed administrator Deloitte has refused to present the bondholder’s plan to the creditors’ meeting scheduled for September 4, which is expected to formalise Bain’s control of Virgin Australia, saying that it has already signed a binding deed of sale with Bain.

“While it is open to any party to submit an alternative proposal, it cannot be considered by the administrators, or recommended to creditors, given the binding agreement already in place,” the company said a statement.

Read more: Bain's 'rescue and reboot' plan for Virgin Australia revealed

Court action

The bondholders have now launched a Federal Court action with the aim of forcing Deloitte to give their proposal equal time at the creditors’ meeting.

If the court rules in their favour, and the creditors follow suit, Virgin Australia would remain listed on the stock exchange rather than be passed into Bain’s private ownership.

Perhaps more importantly, Virgin Australia would become a majority Australian-owned public company “as opposed to the asset of a privately-owned investment company based in the US.”

That’s the take of Rob Sherrard, who co-founded the airline as Virgin Blue in 2000 and is now working with the bondholder group, alongside a team of four other former Virgin executives.

“In simple terms, we are proud investors and supporters of Virgin Australia and its people,” Sherrard said in a statement issued today.

“We believe in the airline, firmly support the vision of management and are confident that Virgin can return to being a successful airline.”

Backing 'Plan B'

The bondholder’s pitch is backed by over a dozen heavy-hitting financial institutions including UBS, Credit Suisse, Morgans and Deutsche Bank, along with aircraft leasing firms who are owed for the provision of around half of Virgin’s fleet.

Sherrard believes that the “founders and bondholders proposal will result in the best return for all creditors and employees,” and on that basis “ we are very keen to speak with employees and engage with the employee unions on the details of our proposal as soon as possible.”

However, “under the terms of the Virgin Australia Administration, we have not been able to do so."

Sherrard stressed that this isn’t an attempt for the ex-Virgin team to move back into the airline’s Brisbane offices, saying he wanted it “to be very clear that we don’t want to run the airline.”

“That is the job of the existing management team. We are focused on rebuilding our airline through a solid recapitalisation proposal.”

Also read: How Virgin Australia 2.0 plans to win back business travellers

David Flynn

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.