Virgin Australia to be sold to Bain Capital

[HS-TQE]

^^

Related article now posted on Executive Traveller (AusBT). Sherrard is working alongside 4 ex-Virgin Blue era executives.

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

Virgin's rebel bondholders hit the eject button in the battle to take control of Virgin Australia.

www.executivetraveller.com

 

[HS-TQE]

10 of Virgin Australia's leased 737s are set to be picked up by REX (per AFR).

AFR reports that REX are set to sign with the lessors to take over 10 of the discarded former VA 737s, after VA notified the lessors that the surplus 737s are not required.

Take off! Rex swoops on 737s left behind by Virgin 2.0

Major domestic flight routes hopeful Regional Express is set to pounce on a bunch of Boeing 737s discarded by the downsizing Virgin Australia.

www.afr.com

 

[moa999]

And now these VA Bond Holders want to have status akin to secured investors.

Where are they asking for secured assets?

All I can see them asking is for an alternative proposal to be considered.
Admittedly it seems to rely on a somewhat presumptive increase in value to work.

 

[jakeseven7]

VIRGIN BONDHOLDERS VOW TO REPAY BAIN, SHERRARD BREAKS COVER



Virgin Australia’s bondholders have vowed to repay ‘winning’ bidder Bain for the money it’s pumped in to keep the airline flying should its rival proposal be successful, Australian Aviation can reveal.

In documents filed to the Federal Court, a lawyer acting for the alternative offer publicly outlined its plans for the first time. The group said its bid would provide “an immediate better return” and also:

• Has the backing of more than 14 major financial institutions including UBS, Credit Suisse, and Deutsche Bank;
• Is supported by around 60 bondholder creditors, who are personally owed $800 million;
• Will retain the airline’s base in Brisbane;
• Will return the business to the ASX;
• Will allow a union or employee representative to sit on the board; and
• Will honour all employee entitlements as well as flight credits and loyalty program obligations.

Later on Thursday, former Virgin Blue co-founder Rob Sherrard confirmed speculation he had been working with the bondholders on a deal alongside former chief financial officer Manny Gill, former network operations manager Andrew Lillyman, founding HR manager Bruce Highfield and former PR boss Heather Jeffery.

Virgin bondholders vow to repay Bain, Sherrard breaks cover

The group said its offer would provide “an immediate better return” and has the backing of major financial institutions such as UBS, Credit Suisse, and Deutsche Bank.

australianaviation.com.au

 

[jakeseven7]

10 of Virgin Australia's leased 737s are set to be picked up by REX (per AFR).

AFR reports that REX are set to sign with the lessors to take over 10 of the discarded former VA 737s, after VA notified the lessors that the surplus 737s are not required.

Take off! Rex swoops on 737s left behind by Virgin 2.0

Major domestic flight routes hopeful Regional Express is set to pounce on a bunch of Boeing 737s discarded by the downsizing Virgin Australia.

www.afr.com

Wow Rex twisting the knife into VA, no love lost between these two companies.....

The Rex offering will probably most closely compete with VA2's with their shift down market.

Rex swoops for ex-Virgin 737s to fly Sydney-Melbourne-Brisbane

Rex has reportedly made moves to secure up to 10 Boeing 737s off the back of Virgin Australia’s restructuring as it prepares to expand its service.

australianaviation.com.au

 

[Scarlett]

I'm not sure this is Rex twisting the knife, but rather Rex setting fire to a bunch of cash.

- 3 airlines hasn't worked out well in Australian history.
- VA and QF/JQ are the incumbents.
- Both already have pax with golden handcuffs and established FF programs.
- Both already have pax with outstanding vouchers.
- Where is Rex going to pitch themselves? Competing with VA2, or JQ, or both?
- And starting this folly in a depressed market.

Although I have flown with them a few times and found the experience entirely satisfactory, their brand to me feels like they're just a bunch of whingers.

 

[exceladdict]

I'm not sure this is Rex twisting the knife, but rather Rex setting fire to a bunch of cash.

- 3 airlines hasn't worked out well in Australian history.
- VA and QF/JQ are the incumbents.
- Both already have pax with golden handcuffs and established FF programs.
- Both already have pax with outstanding vouchers.
- Where is Rex going to pitch themselves? Competing with VA2, or JQ, or both?
- And starting this folly in a depressed market.

Although I have flown with them a few times and found the experience entirely satisfactory, their brand to me feels like they're just a bunch of whingers.

I would assume the money comes from connecting traffic from regional routes where they have a (government subsidised) monopoly. Post Covid they may not be able to work with VA/QF to align schedules (ACCC) so this is a way to provide additional service and increase revenue from the monopoly routes

 

[Melburnian1]

I would assume the money comes from connecting traffic from regional routes where they have a (government subsidised) monopoly. Post Covid they may not be able to work with VA/QF to align schedules (ACCC) so this is a way to provide additional service and increase revenue from the monopoly routes

But the number of passengers on its rural routes would be insufficient to fill a B738, assuming that a fair number of the passengers carried are (for example) making a Narrandera to Sydney trip and not wanting to connect to any major destination such as MEL or BNE.

 

[Melburnian1]

This appeared on 'The Australian' site at about 1330 hours on Friday 14 August 2020 (by John Durie, business commentator - extract only is below):
-------------------

Virgin Australia aircraft lessors are owed $1.9bn. (There was a photo).

-------------------

"...Administrator Vaughan Strawbridge has laid out the perilous financial state of Virgin Australia, warning that bondholder activist Broad Peak has declined to provide any details of its funding plans in its expression of interest lodged before the Bain deal.

Bondholders Broad Peak Investment Advisers and Tor Investment Management have launched a bid to derail the sale of Virgin to Bain Capital, seeking through the Federal Court to have their alternative proposal considered by the airline’s administrators and put to creditors for a vote. The application is due to be heard next week.

Administrators Deloitte and Bain have both said the sale agreement does not allow other proposals to be considered or put to creditors.

Deloitte’s Strawbridge concluded: “We want to emphasise the gravity of the decision, which we as administrators had to make, not only in respect to exercising the power of sale under 437A of the Corporations Act for the sale of the business, but whether we could ensure the companies continued trading.”

The administrators’ agreement with Bain included $125 million of interim funding and $750 million as a deed of security.

Broad Peak, one of the bondholder group, had lodged an expression of interest on May 31 ahead of the June 2 decision to shortlist Cyrus Capital Partners and Bain, and the eventual sale deal with Bain on June 26.

Strawbridge’s letter sets out the administrators’ argument for rejecting the bondholders’ plan. “As you are aware, the administrators have exercised our power of sale pursuant to section 437A of the Corporations Act and as such we are unable to consider competing proposals for the sale of the assets or otherwise dealing with them in any manner whatsoever.

“This remains the position unless the asset sale to Bain Capital is set aside by the court.

“Currently, neither BP&T (Broad Peak and Tor) nor any other party, have brought an application to the court seeking to set aside the asset sale to Bain Capital.”

Federal Court judge Justice John Middleton will next week consider the latest bondholder challenge, which is clearly designed to attempt to get more money for the bondholders.

It would be a surprise if Justice Middleton accepted the challenge.

He has already ruled that an alternate deed of company arrangement (DOCA) may be put to the October 6 creditors’ meeting, but in reality the meeting can only approve one DOCA.

If the Bain deal is rejected then the company faces liquidation, which is not likely to provide any returns to the insecure bondholders.

The company has 10,247 creditors, including its 9020 staff.

Secured lenders are owed $2.3bn, the bondholders $1.9bn, trade creditors $167m, aircraft lessors $1.9bn, landlords $71m, staff $451m and customer credits $604m.

The commitment provided by Bain included covering employee entitlements in the event of a liquidation of $450m, travel credits $604m, a loan from the Velocity frequent flyer company of $150m and other costs.

Broad Peak knows the extent of the liabilities..."

 

[Melburnian1]

I'm not sure this is Rex twisting the knife, but rather Rex setting fire to a bunch of cash.

- 3 airlines hasn't worked out well in Australian history.
- VA and QF/JQ are the incumbents.
- Both already have pax with golden handcuffs and established FF programs.
- Both already have pax with outstanding vouchers...

Should VA be liquidated (see above), it'll be a new ball game. But one can't get ahead of oneself.

 

[RAM]

The 'Magic Pudding' lives!

In a post a few days back I pointed out the wondrous result that the two effectively $2 hedge funds with around 1 employee each (according to their filings) & no bricks + mortar offices - are proposing.

They'll get someone to put in $800m new capital and then take out between 50 cents to 67 cents in the dollar for the unsecured debt. Now they've revealed they'll also pay back Bains $125m amongst other 'water in wine' actions.

I want some of what they're smoking! After all it is a neat trick to pay in $800m and then pull back out something between $1,125m to $1,425m & pay out all staff entitlements.

Normally even the most brazen Private Equity people wait 6 months before paying themselves dividends (often equal to or greater than the mount of equity they provided).

I suppose if you don't aim for the sky you cannot hit the roof!

Suppose our two favourite operators did pay 1 to 1.5 cents in the dollar to buy the bulk of their unsecured debt holdings - then at 50 cents they stand to make 33 to 50 times their investment. Not a bad return perhaps for wining & dining a few journalists!

 

[Mikeact1]

Is it possible for someone to basically summarise a 'What if ?' scenario, as it seems awfully complicated to me, as someone not involved in the financial industry Thanks.

 

[AustraliaPoochie]

What if's:
Bain can always change things once or if they get things that suit them, ie, they pass the 2nd creditors meeting, and they get control, they could tweak VA2 to their needs.
Just like PS (Paul S) used Covid as a reason to do a lot of things.
Worst case scenario, is as gossip, that Bain milk VA2 for as much as they can get, and then shut it down.
Bain could go into cahoots with Rex.
Bain could take away J, even though as of now, they say its going to keep J, they could make all the J seats into economy X.
Too many scenarios.
I think for now, lets focus onto the 2nd creditors meeting, firstly.
After all, we are just as of now, speculating.

 

[GoldCanyon340]

Worst case scenario, is as gossip, that Bain milk VA2 for as much as they can get, and then shut it down.
Bain could go into cahoots with Rex.
Bain could take away J, even though as of now, they say its going to keep J, they could make all the J seats into economy X.

IMO yes and no. I agree Bain/Rex could be a thing and also the conversion of J to YX with a moveable curtain from a yield management POV would be interesting and shake up the market. Bain stripping VA though, I think a lot of this comes from the tales told over camp fires about Ansett/NZ, most of which were untrue.

 

[AustraliaPoochie]

In back to the long now past, I had used nearly all of my (*at that time* AN Global Rewards points) to do a J ADL - SIN - ADL, at the time of the 9/11 and AN collapse, and was happy to (at that time), hear of AN2, but didn't get the chance to use AN2.
My brother lost all of his points in AN GR, he didn't use any of the points when it went belly up.
Hard to say, but if Bain get their way, anything goes.
I feel that Deloittes would get quite a sum, if Bain gets all the okays, and they get past 2nd creditors meeting.
They seem not to want to consider any thing else except Bain, everything else is no, Bain is it.
Have a lot of FB points, and am hoping things stay the same re FB, so I do have hopes VA will continue its liaison with FB.
Ok, I will turn my speculation mode off, now, and will wait for the results of 2nd creditors meeting.

 

[Melburnian1]

'The Australian' had some article in the last day or so that referred to a meeting on 'October 6' rather than what I'd thought was the altered date of the second creditors' meeting (September 4)).

This didn't make sense to me. Can someone explain?

 

[andrewpf]

What if's:
Bain can always change things once or if they get things that suit them, ie, they pass the 2nd creditors meeting, and they get control, they could tweak VA2 to their needs.
Just like PS (Paul S) used Covid as a reason to do a lot of things.
Worst case scenario, is as gossip, that Bain milk VA2 for as much as they can get, and then shut it down.
Bain could go into cahoots with Rex.
Bain could take away J, even though as of now, they say its going to keep J, they could make all the J seats into economy X.
Too many scenarios.
I think for now, lets focus onto the 2nd creditors meeting, firstly.
After all, we are just as of now, speculating.

I'm not sure what this means? Bain could of course change their business plan ... but to what end? Presumably their goal is to get the airline in a position where it is profitable, then sell it. So they will steer the airline in such a way that minimises costs, while attracting the most amount of revenue within the context of the current market.

The value in the business is that it exists - i.e. the planes, pilots, website, customer base, brand, loyalty program, lounges etc etc don't need to be pulled together from scratch as would be the case for a new airline. Obviously it needs to be shaped into a different business model - the old model was broken + economic times/travel circumstance has changed. I doubt the physical assets on their own - essentially the aircraft that Virgin own - are worth much of anything particular in the current depressed travel environment. The loyalty program isn't worth much either without somewhere to spend points.

I suspect there is a lot of pent up demand in mid-range travel ... job losses likely have hit the lower end (retail, food and beverage workers etc) and the use of technology the corporate end (Zoom, MS Teams etc). But you have a large bunch of office workers that likely still have their jobs, working from home, and wanting to travel for recreation etc. This is just my speculation of course, but it seems logical to me.

 

[AustraliaPoochie]

Haven't checked lately, but if the new article says 06 Oct, that might be the new date.
Maybe (dr Google) can bring it up, either Sep or Oct.

 

[Melburnian1]

This was on 'The Australian' website from Friday night 14 August 2020, but is still on today (Sunday 16).

One comment of a reader suggests Mr Scurrah is talking outside his field of expertise, and another says the bondholders provided capital, much of which was squandered, so creditors ought have a vote (as to the alternative proposal).

Many AFF users wouldn't be silly enough to invest in unsecured bonds offering eight per cent return per annum with an airline that had a track record (on a group basis) of making losses.

---------

This is part of the article:

'...In his email titled “message to everyone”, Mr Scurrah told employees it would be very disruptive to the sale of Virgin if “for some reason an alternative proposal was allowed” to be put to creditors and voted on.

“We are working incredibly well with Bain Capital and are aligned on our vision to get through COVID and become a profitable and successful business in the future,” Mr Scurrah said.

“Bain is the right partner for us and is committing an extraordinary amount of resources, time and expertise to this business.”

He described the proposal put forward by bondholders as “non-binding, conditional, indicative and incomplete” and apologised that it had created so much noise in the media...'

 

[Melburnian1]

..I suspect there is a lot of pent up demand in mid-range travel ... job losses likely have hit the lower end (retail, food and beverage workers etc) and the use of technology the corporate end (Zoom, MS Teams etc). But you have a large bunch of office workers that likely still have their jobs, working from home, and wanting to travel for recreation etc. This is just my speculation of course, but it seems logical to me.

All good points, but historically haven't airlines made most of their money (if not specifically LCCs) from flyers at 'the front end' in J and perhaps to a minor extent in recent years in W class?