Bain to acquire Virgin Australia but creditors try to block deal

September 2020 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

September 2020 Issue

Virgin Australia, which collapsed into administration in April with around $3.17bn worth of debt, is to be sold to US private equity group Bain Capital.

Deloitte, as administrator for Virgin Australia, announced in late June that it had signed a deal with Bain which would retain thousands of jobs and recapitalise the airline.

Deloitte and Bain did not release financial details of the deal, which creditors will vote on before the end of August.

According to Bain, Virgin Australia will restart operations in September with up to 6000 of its 9000 employees and 60-70 aircraft operating. The firm has also confirmed that the existing Virgin management team, led by chief executive Paul Scurrah, will remain in place. Bain has agreed to loan the airline $125m, which should be enough to see it through until August.

“This is a great day for Virgin Australia and a huge milestone as we move forward with Bain Capital,” said Mr Scurrah. “Bain Capital has spent many hours over the past weeks speaking to us and getting a deep understanding of our business and working to secure a deal with our administrators. We know they are committed to investing in the airline and we are thrilled to be working with them into the future.

“It was always the goal to bring our airline out of administration as quickly as possible in a stronger financial position and this announcement brings us a step closer to that,” he continued. “Bain’s investment will cement our future as a major Australian carrier, secure thousands of direct and indirect jobs, and ensure we can continue to bring competition to millions of customers for many years to come.”

The agreed deal for the airline has proved somewhat controversial, however. Another private equity group, Cyprus Capital Partners, was also in the running to acquire Virgin Australia, but the firm withdrew its bid after two months, citing a lack of engagement from Deloitte. Cyprus said in a statement that it would be willing to reinstate its offer if Deloitte agreed to reengage in good faith with a view to concluding a transaction.

Bain’s agreement with the administrator has also been called into question by Virgin Australia’s bondholders, who are owed AU$2bn. Under the terms of Bain’s deal, equity holders would be wiped out, while bondholders face uncertainty over how much they would receive.

A group of bondholders represented by Singapore fund manager Broad Peak Investment Advisers has asked the Australian Takeovers Panel to declare that the sale process run by administrator Deloitte was unacceptable because it will stop them from voting on an alternative deal at a meeting of creditors in August.

The company’s bondholders had proposed swapping their AU$2bn in debt for ownership of Virgin Australia. The group said it would pour AU$925m into the company in a recapitalisation plan and Virgin Australia would remain listed on the Australian Securities Exchange. A spokesman for the bondholder’s group criticised the administrator for failing to consider a last-minute offer for the company, which he said the group would continue to push for. “Otherwise, as a result of the administrator’s decision today, the inevitable outcome of the Bain proposal is that investors are left with a very poor recovery, which is a manifestly unjust outcome,” he said.

A spokesman for Deloitte said the administrator believed the bondholders’ action was “without merit”. “They will present information to the Panel as required to refute all claims made by the applicants,” he said. “The administrators have undertaken a process which has resulted in a sale to Bain Capital, and which provides certainty for the future of the airline.”

Richard Summerfield