Virgin investors wiped out in Bain deal as bondholders brace for spare-change return
Virgin Australia’s bondholders fear they will recoup as little as 6.5¢ in the dollar, or just $130 million out of the $2 billion they are owed, under the collapsed airline’s sale to American private equity firm Bain Capital.
The stricken carrier’s administrator, Deloitte, confirmed on Tuesday that Virgin’s shareholders – which include global aviation giants Singapore Airlines and Etihad Airways – will not see a cent returned to them under the deal signed on Friday with Bain.
Major bondholders now estimate they could receive between 6.5¢ and 10¢ back for every dollar they are owed, according to a source close to the group. The bondholders based that estimate on a view that Bain’s offer to all creditors – which include bondholders, staff owed entitlements, aircraft lessors and ticket holders – will total around $1.7 billion.
Virgin collapsed in April owing $6.8 billion to creditors in total.
The bondholders expect Bain to make savage cuts to Virgin’s cost base, including by laying off and paying redundancies to 4000 workers. They expect the firm to cut Virgin’s fleet of 132 aircraft back to about 70 to 75 Boeing 737s and cancel and pay out all other aircraft leases.
That would leave around $130 million to $200 million to be distributed to bondholders.
Another bondholder not in the group, who declined to be named because he was not authorised to speak to the media, also expected a return of no more than 10¢.
The biggest question was how many aircraft leases Bain breaks, the source said, as that will determine how much cash is left over for unsecured creditors. “They have no incentive to be generous, other than just making a gesture,” the source said.
A group of bondhodlers advised by Sydney firm Faraday Associates last month lodged a proposal with Deloitte to take ownership of the company and pour $925 million into it to keep it alive to avoid being wiped out in a sale. However, Deloitte ignored that proposal and signed a “binding agreement” with Bain last Friday.
There are around 6000 bondholders made up of around 30 major institutional investors and thousands of retail investors, including many who bought their bonds in a $325 million issuance last November.
Joint administrator Richard Hughes wrote to Virgin’s shareholders on Tuesday to say that following an agreement struck last week for Bain to buy Virgin, “we do not expect there will be sufficient recoveries to repay creditors in full”.
“We have reasonable grounds to believe that there is no likelihood that shareholders of [Virgin] will receive any distribution for their shares,” Mr Hughes said.
The final step in the process is a creditors vote in August. Bain’s deal requires 50 per cent of creditor votes by both number and value to be ratified.
Bain and Virgin’s management, led by chief executive Paul Scurrah, are meeting this week to work through the airline’s relaunch plan, including how many planes it will have and how many of Virgin’s 9000-strong workforce will be laid off.
Virgin shares were trading on the ASX with a market value of $726 million when the airline collapsed on April 21 with debts of $6.8 billion.
Virgin’s four largest shareholders – Singapore Airlines, Etihad Airways, and Chinese groups HNA and Nanshan – owned 20 per cent of the company each, while Richard Branson’s Virgin Group owned 10 per cent.
The remaining 10 per cent was owned by smaller investors, including many retail shareholders.
Former Virgin CEO John Borghetti was one of the top individual shareholders with 9.3 million shares, worth around $800,000, according to the company’s last annual report.
Mr Branson’s Virgin Group is expected to emerge with a 10 per cent stake in the reborn company alongside Bain under an agreement to maintain the Virgin brand in Australia.
Get our Morning & Evening Edition newsletters
Business reporter at The Age and Sydney Morning Herald.
Most Viewed in Business
Source: Thanks smh.com