Deloitte plans to push back the next creditor meeting for Virgin Australia’s insolvency case to early September from this month, Private Debt Investor has learnt this week. It is understood that final proposed changes are subject to Australian courts’ approvals.
Earlier this year, Australia-listed Virgin Australia Holdings, the country’s second-biggest airline operator and part of the Virgin Group, found itself in an insolvency proceeding with at least $7.5 billion of outstanding debt.
On 20 April, Virgin Australia’s Board of Directors appointed Deloitte Restructuring Services as a voluntary administrator group to take control of Virgin’s business. The decision came as the airline continued seeking financial assistance from the State and Federal Governments of Australia, according to a company statement on 21 April. Subsequently, the first meeting of creditors happened on 30 April.
Since Boston-headquartered Bain Capital won the bidding for Virgin Australia in late June, the airline company, Deloitte and Bain have moved towards the next steps of the voluntary administration proceeding.
Paul Scurrah, Virgin Australia group chief executive officer, disclosed in June that other parties such as Morgan Stanley, Clayton Utz and Houlihan Lokey were also involved in the sale process.
The second creditor meeting is important for company stakeholders as they will discuss and finally agree on key details of the insolvency plan. The creditor meeting will also lead to an official closure of Bain Capital’s Virgin Australia transaction.
Virgin Australia’s statement on 5 August described the latest developments in the firm’s restructuring plan, to be further discussed in the upcoming creditor meeting.
The statement revealed that the firm’s plan for a stronger Virgin Australia group will form part of a Deed of Company Arrangement, “which will be put to a vote at the second creditors’ meeting”. This plan consists of six key points, such as cutting the cost base, securing about 6,000 jobs and planning for future growth, among other things. The formal consultation with unions and employee groups commenced last week.
A DOCA is a legal contract between the company and its creditors that governs their relations after the end of the voluntary administration. A DOCA binds the company, its creditors, officers, shareholders and administrators, although secured creditors can only be bound by a DOCA if they voted in favour of it.
In a voluntary administration case, the administrator investigates and conducts due diligence on the company to provide the creditors a report about viable options. Typically, the report specifies if it is in creditors’ interests to have the company enter into a DOCA, or to end the administration and hand the company back into the control of its directors, or have the company accelerate the restructuring process through transition to a creditors’ voluntary winding up.
That decision happens before the second meeting of creditors.
Who else has been involved?
Among other private capital investors in the region, Hong Kong’s Tor Investment Management and Singapore’s Broad Peak Investment Advisers have been engaging with Deloitte since Virgin entered voluntary administration, as holders of unsecured notes issued by the airline.
Tor and Broad Peak submitted a back-up recapitalisation proposal and an offer of interim funding that was conditional on acceptance of the back-up proposal on 24 June, according to a circular to creditors disclosed by Deloitte as of 17 July.
The Reasons for Judgement by Justice Middleton released on 15 July showed that Tor and Broad Peak can develop an alternative DOCA to be proposed at the second meeting of creditors.
The judgment also indicated that the proposal by Tor and Broad Peak would involve the conversion of existing noteholders’ and certain other unsecured creditors’ debts into equity worth about 69 cents in the dollar with an option for creditors to sell their shares for cash, and a 100 cent in the dollar return to certain essential or ongoing creditors.
A filing notice accepted by the Federal Court of Australia on 9 July confirmed that the two credit investment firms claimed to hold about $300 million of unsecured notes issued by the airline company.
Overall, Deloitte identified that Virgin Australia owes at least $7.5 billion of outstanding debt to creditors, according to the latest disclosure.
Virgin’s creditor groups include secured lenders and aircraft financiers, which are owed about $2.3 billion; unsecured bondholders owed approximately $2 billion; aircraft lessors owed about $1.9 billion based on the full value of future claims; and trade creditors, landlords, employees and customers who are entitled to credits for flights. There were around 10,247 known creditors of the airline company, including about 9,020 employees as of 17 July.
Queensland Investment Corporation, an investment company owned by the Queensland government, is also an interested party in Bain’s Virgin Australia transaction.
Queensland Treasurer Cameron Dick said in a media release on 26 June he was delighted that Virgin Airlines would continue as Australia’s second national carrier, with its headquarters to remain in Queensland.
QIC’s chief executive officer Damien Frawley also noted in the statement: “Our task was to secure a sound commercial outcome for Queensland and this deal represents a solid investment in a new-look Virgin Airlines.
“Queenslanders will now also own a strategic equity stake in the airline,” he noted, adding, “Queensland is the home of aviation in Australia and we are thrilled that our investment, a mix of equity and economic incentives, has helped to secure that into the future.”