Virgin Australia: Court decision goes against Bondholders

The Virgin Australia bondholders suffered a bit of a body blow to their proposal to have their Deed of Company Arrangement (DOCA) option presented to the next Virgin Australia creditors meeting.

Background

You may remember that the Virgin Australia bondholders who combined hold about AU$2 billion dollars worth of debt in Virgin Australia have been agitating to have their proposal to turn their bond holding into shares, keep the airline listed on the ASX, provide AU$800 million in funding and pay back the AU$125 million Bain Capital provided to keep the airline operating.

The Administrators, Deloitte, on the other hand have already signed a binding agreement with Bain Capital for the sale of the airline, the terms of which are to be distributed to creditors on September 25, in preparation for the creditors meeting on 5 September.

What this is all about

The bondholders wanted to be able to present their alternate proposal to the creditors meeting. The administrators don’t want them to present the alternate proposal, as they already have a DOCA with Bain that is binding.

The bondholders proposal would return them AU67¢ in the dollar in contrast to about AU10¢ that they would get under the administrators sale to Bain Capital. Multiply those cents by a couple of billion, and you can see that the bondholders have a BIG financial incentive to prosecute their proposal.

The decision

Justice John Middleton was having none of it. He denied the application from the hedge funds Broad Peak investments and Tor Investments representing the bondholders. He also threw out their request to have a ‘facilitator’, or independent party to oversee the creditors meeting.

The reasoning for the decision will be delivered at a later date, but the judge did deny the request on the basis of evidence provided on behalf of Deloitte and Bain, that under the terms of the binding sale agreement the administrators had signed with Bain, any vote by the creditors against the Bain purchase would immediately lead to the adjournment of the meeting and that would trigger the sale to Bain.

This is not the administrators first rodeo, obvs.

Is that all?

Not quite. Virgin’s administrators had also sought to restrict the rights of organisations who had leased four jet engines to the airline. Justice Middleton did not agree. Deloitte will appeal.

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.

The decision on the bondholders DOCA is not a big surprise and looks like it will clear the way for the presentation of the sale to Bain to the creditors meeting. There is still the hurdle of the vote at that creditors meeting – but my money would be on the recommended sale to Bain Capital going through.