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VIRGIN AUSTRALIA: Deloitte Defends Fire Sale to Bain Capital

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Patrick Hatch at The Sydney Morning Herald reports that Virgin Australia’s administrator Deloitte has defended its fire sale of the airline to Bain Capital, saying doing so avoided the company being liquidated, as bondholders step up their own efforts to take control of the company.

According to SMH, one of Virgin’s largest bondholders, Broad Peak Investment, lodged an interlocutory process in the Federal Court on July 7 seeking access to the secret sale agreement signed on June 26 between Deloitte and Bain.

SMH says Bain and Deloitte have refused to say how much the private equity firm will pay Virgin’s creditors, which are owed a combined AUD6.8 billion, or how many of Virgin’s 9,000 workers will lose their jobs.

SMH relates that Broad Peak, a Singaporean hedge fund, was part of a group of bondholders that proposed swapping their AUD2 billion in debts for ownership of Virgin. Deloitte passed over the proposal and a rival bid from Cyrus Capital in favor of Bain.

The court action on July 8 comes after it was revealed on July 8 that Broad Peak and Hong Kong-based bondholder Tor Investment Management have applied to the Takeovers Panel to intervene in the sale to Bain, arguing the way Deloitte ran the administration was “unacceptable” and blocked them from presenting their alternative deal to creditors at the second creditors’ meeting in August, SMH relates.

Broad Peak’s legal action is seeking a variation to the court’s non-publication order over the Bain deal so that Broad Peak, the Takeovers Panel and any party involved in the Takeovers Panel’s proceedings can access the documents, according to SMH.

But Deloitte shot back on July 8, saying Broad Peak and Tor made up a minority in the bondholder group in value and number, and that the sale agreement with Bain was in “the best interest of all creditors and have avoided the airline going into liquidation,” SMH relays.

“The expedited sale process, and now binding agreement with Bain Capital, provides transaction certainty so that liquidation can be avoided and a return to unsecured creditors is achieved,” the report quotes a Delloite spokesman as saying.

SMH relates that the spokesman said the bondholder proposal for Virgin could not be taken forward because it was “highly conditional, and without evidence of committed funding”.

Bondholders fear they will receive less than 10 cents for each dollar they are owed under the sale to Bain, SMH says. The bondholder group is being advised by boutique Sydney firm Faraday Associates and lawyers from Corrs Chambers Westgarth. The group’s debt-for-equity plan involved pouring AUD925 million into Virgin to keep the company alive and listed on the Australian Securities Exchange.

Virgin’s AUD2 billion worth of unsecured bonds are owned by 30 large institutional investors and about 6,000 “mum and dad” retail investors. Broad Peak is backed by Singapore’s sovereign wealth fund Temasek, which held an interest in Virgin through its majority ownership of Singapore Airlines, which in turn owned 20 per cent of Virgin, the report adds.

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, 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.

As reported in the Troubled Company Reporter-Asia Pacific on June 29, 2020, The Sydney Morning Herald said 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”.

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 said.

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