Bain Capital put a $3.5 billion price tag on Virgin Australia in order to take control of the collapsed airline, but unsecured creditors owed around $2 billion will receive between 9c and 13c on the dollar.
Those details are contained in the Report to Creditors of Virgin Australia released this morning by airline-appointed administrator Deloitte, ahead of a September 4 meeting for all creditors to vote on Bain's buyout.
Bain will fully pay the $450 million owed to staff and the $2.3 billion of debt held by secured creditors, and also honour all travel credits as 'Future Flight' credits for bookings up to 31 July 2022 and travel to 30 June 2023.
However, 6,500 unsecured creditors – a group which includes the rebel bondholders who sought to present their own plan and derail Bain in the process – will, as expected, take a haircut to the tune of losing between 87c and 91c on the dollar.
Shareholders in the airline, including the likes of Singapore Airlines, Etihad Airways and Sir Richard Branson's Virgin Group, will receive nothing.
As previously reported, Bain also stumped up $125 million "to allow the business to continue to trade from 1 July 2020 to completion of the sale transaction," the report says.
Critical of Virgin's past strategy
In charting the airline's bumpy history, the report was also highly critical of the direction taken by former CEO John Borghetti, citing a "misconceived business strategy to change its business model from a low-cost carrier to a full-service airline", "the continued operation of loss-making services, routes and business segments" and a "history of under-delivering on turnaround strategies."
"Cumulative losses almost year on year from 2009 to 2020 of approximately $2.2bn" proved a continual drain on the airline, as "during this period, revenue had continued to grow however it was not profitable growth."
“This period encompassed the change in the Virgin Group’s business from a budget to full-service airline. As evident by the year-on-year losses, the Virgin Group was unable to derive sustainable profits from this change in strategy.”
The report also shows that when the airline went into administration on April 21, it was down to $15m in cash, while Deloitte notes "there are … three days from 22 March 2020 to 24 March 2020 when the Virgin Group was potentially trading whilst insolvent."
Deloitte also reiterated that regardless of how Virgin Australia’s creditors vote on September 4, the airline will fall into Bain's hands. That meeting "will determine not who the business is sold to, but how the completion of the sale will occur, that is, by way of an asset sale or DOCA."
"If the Bain DOCA proposal is not approved by creditors at the Second Meeting, the sale to Bain will be completed under an asset sale agreement.”
PREVIOUS [August 24, 2020] | Bain Capital is all but certain to win control of Virgin Australia in the coming fortnight, following a decision by rebel bondholders of the collapsed airline to push the eject button on their audacious counter-bid.
With its last remaining challenger sidelined Bain is now on final approach to take over the airline for which it actually began paying the bills two months ago, when administrator Deloitte chose the US-based investment giant after Cyrus Capital withdrawal its competing bid.
Two key dates loom on the calendar.
How much did Bain offer for Virgin?
Tuesday August 25 is when Deloitte will share with the airline's estimated 12,000 creditors – ranging from bondholders and aircraft leasing firms to landlords, suppliers and employees – its full report on Bain Capital's proposal and the 'deed of company arrangement' to buy the company out of administration.
This will include how much - or perhaps how little – they can expect to receive on the estimated $8.6 billion they're owed, with some forecasts pegging this as low as 10c in the dollar.
Deloitte's portfolio will also reveal exactly how much money Bain Capital will pay to take over Virgin Australia: a figure that's bound to be of interest beyond the creditor's circle.
It's noteworthy that August 25 is exactly 18 weeks since the airline, weighed down by that debt and the impact of Covid-19 on travel, entered administration – testament to Deloitte's aims to fast-track the 'rescue and recovery' process, especially as Virgin was quickly running out of money.
That deal saw Bain inject $125 million urgently needed to keep Virgin cashed up until September, when the creditors will cast their vote on Bain's pitch.
Friday September 4 will see the creditors virtually meet to accept or reject the Bain Capital plan submitted by Deloitte.
Votes will be cast in two groups: the largest number of creditors (more than half the number of creditors) and the creditors with the largest value owed (more than half the total debt).
Bain's flight path to Victory
The first is easily Virgin's 10,000-strong workforce, and airline CEO Paul Scurrah is urging staff to vote in favour of Bain’s blueprint, saying "Bain Capital remains 100 per cent committed to completing the sale and enabling us to be a fierce competitor for years to come with them as our partner."
The second is a somewhat closer call, with unsecured bondholders making a significant part of the overall debt pile, but the majority is what counts.
In a statement issued over the weekend, Bain Capital said it "encourages all creditors to support its Deed of Company Arrangement in order to bring an end to this period of uncertainty and enable the rebuilding process to start as soon as possible."
If both groups give the thumps-up, Bain Capital will have won the necessary support from 'a majority in number and value' to move ahead with its plans for Virgin Australia 2.0.
If only one group – either the majority in number or the majority in value – bends the knee to Bain, the chair will have the deciding vote: and as a representative of administrator Deloitte will chair the meeting, that vote is certain to be cast for Bain.
In the unlikely event that both groups choose to reject Bain's plan, the conditions of Deloitte's initial sale and implementation deed from June 26 still hand the airline to Bain Capital via an asset sale agreement.
Deloitte's Vaughan Strawbridge, who leads the Virgin Australia administration team, says that an asset sale "will take significantly longer to achieve, and be a costly exercise. The return to unsecured creditors is expected to be significantly better if terms of a DOCA are approved by creditors at the second meeting."