Here is the part that relates to VA
Mum and dad investors who bought bonds in airline Virgin Australia are nursing losses of more than 10 per cent as investors and rating agencies fear the company will be among the hardest hit by the coronavirus outbreak.
The Virgin bond sell-off comes amid a broader spike in borrowing costs for risky companies and a freeze in new bond sales as investors fear a prolonged crisis could lead to a rise in defaults in sectors such as travel and energy.
Meanwhile, the cost of insuring against the default by an Australian major bank, which had fallen to levels not seen since before the 2008 financial crisis, spiked 40 per cent.
The $325 million ASX-listed Virgin retail bond was sold in November but fell to a 12.5 per cent loss as the market rate has spiked from 8 per cent at the time of issue to 11.3 per cent.
Virgin Australia's 'sub-investment' grade B+ credit rating was placed on negative outlook by rating agency S&P Global, that said the coronavirus would reduce the airline's earnings by up to $75 million and increase the risks that its debt load increases relative to its earnings.
"This is a business that has struggled to make money and the coronavirus is not going to help it turn around, "said Jonathan Rochford of Narrow Road Capital.
"Virgin listed notes are heavily subordinated – it’s a company you don't want to lend to and it’s part of a capital stack you don't want to be in," he said.
Virgin is among a host of companies considered to be especially vulnerable to a slow down in travel caused by the virus outbreak.
While
equity markets experienced their biggest weekly decline since 2008, the riskier parts of the credit markets were also hit.
Basically VA debt bonds have a negative RoR and there is speculation that VA debt could be a doubtful debt on investors future income statements.
