A group of Virgin Australia bondholders has suffered a serious setback in their attempt to overturn the winning bid for Virgin Australia. The successful bidder was challenged last week by representatives of bondholders in Australia’s government-administered Takeovers Panel. But that challenge was withdrawn just three days later, leaving out-of-pocket bondholders in disarray.
Virgin Australia bondholders wage a guerilla campaign against winning bid
Virgin Australia collapsed in April. An administrator, Deloitte, was appointed, and a formal bidding process got underway. The successful bidder was Bain Capital, who are now busy mapping out a proposal for the airline’s future to take to a creditor’s meeting in August.
Virgin Australia went under with debts approximating US$4.75 billion. Now, many stakeholders stand to lose money. Among the most exposed are unsecured bondholders. Collectively they are owed US$1.4 billion and may receive as little as 6.5 cents in the dollar.
Bondholders range from small mom and pop investors to large financial institutions. It is the latter group, the big institutional investors, who are driving the guerilla campaign against Bain’s successful bid.
Permissible by law, these bondholders, represented by blue-chip advisors and law firms, submitted alternative unsolicited proposals to Virgin Australia’s administrator. Ultimately, those proposals were unsuccessful.
But with Bain Capital’s winning bid yet to be formally accepted by the approximately 10,000 creditors, the bondholders still have a glimmer of hope and are fighting hard.
Two legal challenges to winning bid collapse in last week
On July 6, a group of bondholders represented by Broad Peak Investment Advisers applied for Australia’s Takeover Panel to review the winning bid. The application argued certain aspects of the bidding process were unacceptable. Further, they said it precluded alternative proposals from getting presented to a creditor’s meeting. Broad Peak represented bondholders with US$210 million investments in Virgin Australia.
But four days later, the application was withdrawn.
Concurrently, the same group of bondholders was running a Federal Court case to gain access to details of the winning bid. On the same day, that bid was also unsuccessful.
With this group of bondholders now on the backfoot, the administrator has come out swinging, savaging their proposal, and questioning the bondholders’ ability to raise sufficient funds to keep Virgin Australia flying.
“We considered the proposal but could not take it forward due to its highly conditional nature, lack of certainty, and no evidence of committed funding,” said Deloitte last week.
The lack of clarity concerning the funding of the bondholder’s proposal is a serious stumbling block. In contrast, Bain Capital is well funded and working on its plan to keep Virgin Australia flying.
Success not guaranteed, but almost inevitable
While it isn’t guaranteed Bain’s bid will get the tick of approval at the August creditor’s meeting, it is almost inevitable. That may not be good news for out of pocket bondholders, but it does provide some certainty for other stakeholders, including people flying with the airline.
But there is now a lack of information about Bain’s plans for Virgin Australia. After an initial statement following their win, things have gone very quiet in the Bain camp. A Bain spokesperson later told Simple Flying there would be no further statements for the foreseeable future.
That has given rise to some disquiet. No-one is disputing there is a lot to be done. However, the probable new owners of Australia’s second airline have stopped doing the media rounds and closed the door on leaks.
But as the bondholder’s stumble last week attests, Bain Capital has the upper hand here. They can afford to be silent.