Patrick Hatch and Sarah Danckert at The Sydney Morning Herald reports that Virgin Australia administrator Deloitte said it has agreed to sell the bankrupt airline to American private equity giant Bain Capital, after rival bidder Cyrus Capital Partners withdrew its rescue offer due to a “lack of engagement”.
SMH relates that Cyrus–which was a founding investor alongside Richard Branson in Virgin America–said on June 26 that it was pulling out of the sale because Deloitte had stopped returning phone calls or replying to its emails.
According to SMH, Deloitte said in a subsequent statement that it had entered into a sale and implementation deed with Bain that will result in the sale and recapitalisation of Virgin.
Joint administrator Vaughan Strawbridge said in a statement that Bain had presented a “strong and compelling bid” for Virgin that would “secure the future of Australia’s second airline”. However, neither Deloitte nor Bain would reveal the size of the bid, how many jobs will be lost or how much would be paid to creditors, which are owed AUD6.8 billion, SMH says.
Bain said it was committed to protecting “as many Virgin Australia jobs as possible”, honoring frequent flyer points and travel credits for cancelled bookings and would back Virgin’s current management led by chief executive Paul Scurrah, SMH relays.
“We are determined to see that Australians have access to competitive, viable aviation services for the long term,” SMH quotes Bain’s local boss Mike Murphy as saying.
According to the report, the New York-headquartered Cyrus said that after submitting a binding offer for Virgin June 22 as one of two short-listed bidders, “administrators have not returned calls, emails, or meaningfully engaged with Cyrus to progress its offer”.
Cyrus said in a statement that as a result, it withdrew its offer on June 26.
“I am disappointed that it has become necessary to withdraw our offer,” the report quotes Cyrus founder and chief investment officer Stephen Freidheim as saying. “Cyrus firmly believes that the Australian aviation industry has a bright future and would be willing to reinstate our offer if the administrators agree to re-engage in good faith, productive discussions.”
Virgin went into voluntary administration in April with debts of AUD6.8 billion, setting off a months-long sale process. Deloitte was set to name a preferred bidder out of Bain and Cyrus on June 30 and then put that to a vote of creditors in mid-August, SMH says.
SMH notes that the sale could also still be upended by a late intervention from Virgin’s unsecured bondholders who have presented a proposal to take control and recapitalise the airline.
Cyrus’ decision to drop out of the race will come as a blow to some of the unions representing Virgin’s 9000-strong workforce who favored the group over Bain, the report states.
SMH adds that an insolvency expert with knowledge of the deal said it was “highly unusual” for an administrator to stop taking calls or responding to emails to one of the parties in a two-horse race.
“It tells me that they always wanted Bain,” they said.
They said the bondholders could not be ruled out given their offer to recapitalise the airline and pump in AUD1 billion in new cash would have to be considered at an upcoming meeting of creditors to vote on which offer they prefer, the report relays.
At that meeting, Deloitte will have to measure Bain’s offer with that from the bondholders to consider the rights of all creditors. Sources close to the dealings said the Bain offer has little in the way of a payout for bondholders who are owed AUD2 billion.
About Virgin Australia
Brisbane, Queensland-based Virgin Australia is Australia’s second-largest airline. It commenced services in 2000 as Virgin Blue, wholly owned by the Virgin Group.
As reported in the Troubled Company Reporter-Asia Pacific on April 22, 2020, Bloomberg News related that Virgin Australia Holdings Ltd. became Asia’s first airline to fall to the coronavirus after the outbreak deprived the debt-burdened company of almost all income. Administrators at Deloitte, who have taken control of the Brisbane-based carrier, aim to restructure the business and find new owners within months. More than 10 parties have expressed an interest, Deloitte related on April 21.
Virgin Australia, which has furloughed 80% of its 10,000 workers, will continue to operate some flights for essential workers, freight and the repatriation of Australians, Bloomberg said. The airline’s frequent flyer program is a separate company and is not in administration.
Richard John Hughes, John Greig, Vaughan Strawbridge and Sal Algeri of Deloitte were appointed as administrators of Virgin Australia, et al., on April 20, 2020.
The company owes AUD6.8 billion to lenders, bondholders, aircraft lessors, trade creditors and employees.
On April 29, 2020, the company and certain affiliates filed petitions pursuant to Chapter 15 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.