Virgin Australia: Bondholders day in court

On Monday 17 August, the Federal Court will hear bondholders Broad Peak and Tor’s case to have their proposal for Virgin Australia presented to creditors. They propose to turn their bonds into shares, plus raise AU$800 million to keep Virgin Australia in the air.

Big guns revealed

Up until recently, the bond holders alternate proposal was dismissed as ‘incomplete’, ‘not credible’ and, or, not possible to consider because the deal that administrators Deloitte had done with recommended purchaser Bain Capital – signed on 1 July – was binding. Making it binding was a way of getting Bain to put up the AU$125 million required to keep Virgin Australia solvent until the second creditors meeting scheduled on or before 4 September.

The court action has revealed that there are some heavy hitters behind the bondholders proposal. They include Rob Sherrard, co-founder of the original Virgin Blue along with Brett Godfrey. Sherrard even refers to the proposal as the ‘Founders and Bondholders’ proposal.

Broad Peak Investment Advisors and Tor Investment Management (with AU$300 in debt funding notes) have been the public face of the bondholders, but now we know that the proposal also involves amongst the 60 bondholding institutions:

• Aberdeen Standard Investment
• Alexander Funds Management
• Avenue Asset Management Limited
• Credit Suisse
• Crestone
• Deutsche Bank
• Escala Partners
• Litespeed Management
• Mason Stevens
• Morgans
• Mutual Limited
• Yarra Capital Management
• UBS

And that’s not all, according to the Sydney Morning Herald (gotta love reporter Patrick Hatch) other ex Virgin executives have been providing advice including:

• Manny Gill – Virgin chief financial officer
• Andrew Lillyman – network operations manager
• Bruce Highfield – founding HR manager
• Heather Jeffery – former PR boss

The bondholders are also claiming to be gaining support for their proposal from other Virgin stakeholders

What’s going on here?

Well, put simply its about money. The bondholders stand to lose most if not all of their AU$800 million investment if the sale to Bain Capital goes through.

We don’t know the financial details of the Bain Capital deal that Deloitte will recommend at the creditors meeting. The Australian Financial Review thinks that it may propose something like 10¢in the dollar for unsecured creditors like the bondholders. The alternate offer that the bondholders want to put to creditors would given them something more like 67¢ in the dollar

They think that if they offer some carrots, like a board seat for employees, ensuring employee entitlements, maintaining current management and keeping the company on the ASX, then they stand a better chance of getting more of their money back.

2PAXfly Takeout

This is another timely reminder to wear your seatbelt when seated. Holding you close to your seat will protect you from the sort of injuries sustained on this flight, when unsecured passengers flew to the ceiling of the aircraft, and then came crashing down once the ‘drop’ ceased.

The hope will be that this is an anomaly – a ‘freak accident’ in casual parlance. If it is a systemic error either mechanical or electronic, then this is a larger concern for the airlines that fly Boeing Dreamliner 787 aircraft. Let’s hope it isn’t. If it is, it will pile on the woes to Boeing’s existing stack.

I am not sure that the bondholders proposal will get up, but we will leave that to Justice John Middleton of the Federal Court on Monday.

What’s interesting about all these names, is the inclusion of people associated with original airline Virgin Blue, which interestingly was a low cost carrier. Despite their claims to want to retain the current management, does this mean the bondholders would prefer the airline return to its budget roots?

We are all just going to have to sit on our hands until the Creditors meeting on 4 September.