June 23, 2020 / 11:52 PM / 18 days ago

Virgin Australia bondholders launch rival proposal to stop private equity sale

SYDNEY (Reuters) - Virgin Australia Holdings Ltd (VAH.AX) bondholders lodged a last-ditch recapitalisation proposal for the struggling airline on Wednesday, seeking to recoup more of their investment and stop its sale to a U.S. private equity firm.

The proposal, which would keep Australia’s second largest airline a listed entity, came two days after Bain Capital and Cyrus Capital Partners made final and binding offers to administrator Deloitte.

“Our plan offers a sustainable capital structure underpinned by public ownership to provide certainty and support the strong operating plan for the airline,” a spokesman for the bondholders said in an emailed statement.

The proposal involves a debt-to-equity swap among bondholders owed around A$2 billion ($1.39 billion) plus a fresh capital injection of around A$1 billion, one person with knowledge of the proposal told Reuters.

Broad Peak, a Singapore hedge fund backed by Temasek, is involved in the bondholders’ proposal, the person said.

The firm did not immediately respond to a request for comment.

One of the airline’s secured creditors, speaking on condition of anonymity, said: “The bondholders are in an interesting position, they are creditors and a deal can’t be done without them.”

The new proposal would allow bondholders to recoup around 70 cents on the dollar of their investment, the person said. A second source said that return was a future estimate based on share trading expectations.

The bondholder statement did not identify those taking part, saying only they included thousands of retail investors. FIIG Securities, Northern Trust Asset Management, Sargon CT and The Bank of New York Mellon are all on the creditors’ committee.

Virgin, which competes with Qantas Airways Ltd (QAN.AX) in an effective domestic duopoly, entered voluntary administration in April owing nearly A$7 billion to creditors. The airline had struggled financially even before the coronavirus pandemic crushed travel demand.

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The bondholder proposal would back the existing management team, honour full employee entitlements, customer travel credits and frequent flyer points, the two sources said. They were not authorised to speak on the record.

Deloitte declined to comment on the bondholder proposal. The administrator had said on Monday after receiving the Bain and Cyrus offers that it hoped to select a preferred bidder by June 30.

A meeting is scheduled for August to vote on a deal, which would need the approval of at least 50% of creditors by both value and number. Employees rank as the largest creditors by number at around 9,000, followed by around 6,000 bondholders.

Reporting by Jamie Freed and Paulina Duran; additional reporting by Scott Murdoch in Hong Kong; Editing by Muralikumar Anantharaman, Jane Wardell & Shri Navaratnam

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