Virgin's rebel bondholders bail out, leaving Bain to take control

Virgin's rebel bondholders hit the eject button in the battle to take control of Virgin Australia.

By David Flynn, August 23 2020
Virgin's rebel bondholders bail out, leaving Bain to take control

The consortium of rebel bondholders vying for control of Virgin Australia has pulled the plug on their 'Plan B' proposal to wrest the stick from rival Bain Capital.

Their decision paves the way for the US-based Bain to assume full ownership of the collapsed airline following a meeting on September 4 of creditors, which is expected to hand Bain the keys to Virgin Australia.

Also read: Bain's 'rescue and reboot' plan for Virgin Australia revealed

The bondholders were among the 10,000 creditors owed around $6.8 billion after Virgin went into administration on April 21, but mounted their campaign against administrator Deliotte and presumptive owner Bain Capital after concerns they would receive just 10c in the dollar against their own $200 million debt.

A spokesperson for the group said this week's federal court ruling which blocked them from presenting their own rescue plan to the creditors' meeting left them "with no choice ... but to withdraw our proposal."

"While we maintain that our recapitalisation plan represents a superior outcome for Virgin Australia and its stakeholders, we acknowledge the Federal Court’s decision. We are undoubtedly disappointed."

The bondholder proposal would have seen creditors swap their debt in the airline for equity, raise an additional $800 million to recapitalise and reboot the airline, and have it re-listed on the stock exchange instead of moving into private ownership under Bain Capital.

“Australia deserves a strong second airline and we genuinely believe our recapitalisation proposal is the best long-term option for Virgin Australia and its stakeholders," the group said in a statement.

"We believe that relaunching the airline as an Australian publicly listed company is a preferable outcome for Australia. It is clear that many large institutional as well as retail creditors agreed and supported our proposal, for which we are thankful."

However, the group's not about to go quietly.

August 25 will see Deloitte reveal more details of Bain's deal, including how much the deep-pocked investment giant actually paid for the airline and what return creditors can expect.

“After the release of the Administrator’s report, we reserve our rights to take whatever action is necessary to protect our interests as creditors," the bondholder spokesperson said.

In turn, Bain hit back at the group and repeated its earlier claim that the alternative rescue plan was merely a bargaining chip in an attempt to gain a higher return on the bondholder's unsecured investment.

Withdrawing the proposal was acknowledgement "that their proposal is incomplete and unable to progress by formally withdrawing their proposal," a Bain Capital spokesperson said.

"This is not unexpected, as they had previously suggested behind closed doors that they were willing to abandon their disruptive efforts in exchange for a much smaller recovery than the asserted value of their proposal, that would apply just for themselves.

"Bain Capital believes that all creditors should be treated fairly and similarly situated creditors should be treated equally."

Deloitte's Vaughan Strawbridge, who has been leading the administration process over the past four months, told Virgin staff via email that the bondholder's withdrawal was "welcome."

"I know this has been an uncertain time for everyone, and I'm grateful to the work of everyone across the business in getting us to the final stages in this process," Strawbridge said.

PREVIOUS [August 17, 2020] The Federal Court has denied Virgin Australia’s rebel bondholder group the opportunity to present its own take-over plan for Virgin Australia at a meeting of the collapsed airline’s creditors on September 4.

However, the court indicated it would not block any alternative proposal to that of presumptive owner Bain Capital being circulated to creditors ahead of that meeting in September.

Leading Virgin bondholders Broad Peak Investment Advisors and Tor Investments, backed by a coterie of fellow investors along with multiple aircraft leasing firms, who together are owed $800 million in total, are seeking to have their debt converted into ownership of Virgin Australia rather than accept  as little as 10c in the dollar from Bain as the US firm wipes the slate clean.

Virgin's 10,000 creditors, who are owed some $6.8 billion, are set to vote on Bain's deed of company arrangement (DOCA) in what to date was largely considered a formality.

The bondholders sought to have Deloitte ordered to list their own proposal alongside that of Bain, a move which the court rejected, although the bondholders can now propose their 'Plan B' to creditors – which includes Virgin's own employees – independently.

Virgin Australia CEO Paul Scurrah entered the fray last week, urging staff to vote as a group in favour of Bain’s blueprint.

 "I know this has a huge impact on you all personally and is unsettling," he told staff. "I can assure you that 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."

In a statement issued following the court's decision, Bain Capital said its "key focus is getting through administration to ensure Virgin Australia fights another day and has the chance to rebuild."

The bondholders have yet to formally respond to the judgement.

PREVIOUS [August 13, 2020] | Australia’s Federal Court will on Monday decide the fate of a bid by a rebel group of Virgin Australia bondholders to block a takeover by presumptive new owner Bain Capital.

The bondholders – a group of large financial institutions owed a combined $2 billion out of the collapsed airline’s $6.8 billion debt – fear they’ll receive as little as 10c in the dollar from Bain as the US firm wipes the slate clean.

Their ‘Plan B’ alternative is to have their debt converted into ownership of Virgin Australia, into which they’d funnel an additional $800 million to recapitalise the airline.

However, airline-appointed administrator Deloitte has refused to present the bondholder’s plan to the creditors’ meeting scheduled for September 4, which is expected to formalise Bain’s control of Virgin Australia, saying that it has already signed a binding deed of sale with Bain.

“While it is open to any party to submit an alternative proposal, it cannot be considered by the administrators, or recommended to creditors, given the binding agreement already in place,” the company said a statement.

Read more: Bain's 'rescue and reboot' plan for Virgin Australia revealed

Court action

The bondholders have now launched a Federal Court action with the aim of forcing Deloitte to give their proposal equal time at the creditors’ meeting.

If the court rules in their favour, and the creditors follow suit, Virgin Australia would remain listed on the stock exchange rather than be passed into Bain’s private ownership.

Perhaps more importantly, Virgin Australia would become a majority Australian-owned public company “as opposed to the asset of a privately-owned investment company based in the US.”

That’s the take of Rob Sherrard, who co-founded the airline as Virgin Blue in 2000 and is now working with the bondholder group, alongside a team of four other former Virgin executives.

“In simple terms, we are proud investors and supporters of Virgin Australia and its people,” Sherrard said in a statement issued today.

“We believe in the airline, firmly support the vision of management and are confident that Virgin can return to being a successful airline.”

Backing 'Plan B'

The bondholder’s pitch is backed by over a dozen heavy-hitting financial institutions including UBS, Credit Suisse, Morgans and Deutsche Bank, along with aircraft leasing firms who are owed for the provision of around half of Virgin’s fleet.

Sherrard believes that the “founders and bondholders proposal will result in the best return for all creditors and employees,” and on that basis “ we are very keen to speak with employees and engage with the employee unions on the details of our proposal as soon as possible.”

However, “under the terms of the Virgin Australia Administration, we have not been able to do so."

Sherrard stressed that this isn’t an attempt for the ex-Virgin team to move back into the airline’s Brisbane offices, saying he wanted it “to be very clear that we don’t want to run the airline.”

“That is the job of the existing management team. We are focused on rebuilding our airline through a solid recapitalisation proposal.”

Also read: How Virgin Australia 2.0 plans to win back business travellers


David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

08 Jul 2017

Total posts 31

These would be "Unsecured" Bondholders - I do not like their chances of success Monday as such have already lost out in court in other previous attempts.

14 Aug 2020

Total posts 2

They might be unsecured but don't you reckon they have a bit more of claim than Bain, considering they have already invested $2bn? Also don't you think its better to have Aus' 2nd airline as an ASX-listed business and not owned by american private equity who are just gonna flip it in a couple years

Virgin Australia - Velocity Rewards

24 Aug 2011

Total posts 783

Unsecured. Doesn't matter. They can only offer another $800 million of capital. If there's a third or fourth wave of virus and international feeds don't eventuate, the whole thing will just collapse and go into liquidation. They were foolish for investing in high risk high reward in an airline in the first place, and now want to risk another $800m. No hope. 

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 319

Agreed.  This is likely fizzle out (again).

Some of the lessors IMO should start the process of reclaiming the leased aircraft (entire VA mainline/Tiger Airbus fleet, some 737s and a sole 777 (VH-VOZ)).

This is a noble attempt but IMHO it's also doomed to failure. A lot of people don't seem to be impressed with the way Deloitte handled all of this, remember how Cyrus Capital said Deloitte basically ghosted them and seemed set on Bain all along? But from what I read Virgin was running out of cash and running out of time so Deloitte had to move quickly to get the best deal sewn up before the airline basically collapsed and became prime pickings for a liquidator, so Bain got the nod on the proviso that it would take over financial responsibility for Virgin right away, which it did. I think Bain is pretty much a done deal now, it would be a bit much to suddenly let another horse into this race.

Qantas - Qantas Frequent Flyer

26 Feb 2014

Total posts 4

How binding is the sale agreement with Bain.  Don't the creditors have to agree with it? 

08 Jul 2017

Total posts 31

A Majority of Creditors by Number and/or A majority of Creditors by Value need to pass it.

If neither pass then it fails (unlikely).

If one then effectively Deliotte has the casting vote.  Deliotte want it to succeed.

If both then it succeeds.

09 Aug 2015

Total posts 98

That's correct. Of the two groups the largest segment of creditors by number are Virgin Australia employees, and for  creditors by value that's twenty-six secured lenders who are owed about $2.3 billion, the bondholders mentioned above are 'unsecured'. The VA employees were considered likely to vote for Bain although this new proposal could sway a lot of them. But all it takes is for one of the two groups to vote for Bain and then Deloitte will have the casting vote, and it's hard to think both will vote against Bain, so Bain pretty much has this in the bag.

09 Aug 2015

Total posts 98

I read somewhere Bain saying that the bondholders were just agitating to get a better return than 10c on the dollar, they were hoping that Bain would turn around and make special provisions for them to get more money through a private deal 'struck on the side', and this is why they're trying to rock the boat.


11 Jul 2014

Total posts 940

Comes across like bad sportsmanship. Interesting that Virgin Blue old execs are advising the bondholder,  does it mean they will cut the business back to the Blue day?

20 Oct 2015

Total posts 240

Why are people so quick to think that any time VB is mentioned it means VA going back to being an LCC? Sherrard very clearly says they have no intention of getting involved with the running of the airline and they have full faith in current management, so whatever Paul Scurrah has planned would remain, and his plan is largely the one Bain has backed. I think a big reason the former VB execs are involved is that they carry weight when it comes to being listened to, compared to some faceless bank exec. They are probably banking on the involvement of former Virgin execs to help sway the staff, who as mentioned earlier in a comment are one of the two voting blocs. If Sherrard and co can bring the staff over to their side, and the bondholders have the muscle to sway the other bloc of investors, then that's probably what they are planning. I reckon they will lose this battle though, it's just too late for them.


11 Jul 2014

Total posts 940

I would like to see it become a majority Australian owned airline but the old head and gut tells me this isn’t going to end pretty if bond holders relist the company.

Qantas - Qantas Frequent Flyer

26 May 2014

Total posts 469

The staff should get behind the proposal that is least likely to see the business in liquidation, a scenario in which there will be nothing for staff entitlements after the secured creditors are partially paid.  They should not be led by notions of more jobs surviving under one or other scheme. In view of the recent stumble in the recovery of domestic travel, the bondholder's scheme is not credible.

14 Aug 2020

Total posts 2

Too late because Deloitte has locked them out of the process for some unbeknownst reason 


19 Apr 2012

Total posts 1425

I thought the bond holders were foreign airlines so not sure how it returns to Australian owners. Being listed on the stock exchange doesn’t mean Australian ownership methinks 

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 319

Bondholders and Shareholders (where the Foreign Airlines had 20% stakes (each) in, plus the 10% from Virgin Group) are completely different.

04 Dec 2017

Total posts 70

As it was said...ain't over till the fat lady sings......

19 Jun 2020

Total posts 28

hurry up already, I am sick of all this talk -  just make a decision and move forward and let the paying public do the talking with the offer v Qantas and any other airline 

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 319

I think this finally kills off the long standing rumours that Temasek (or any related companies: Singapore Air, Broad Peak, etc) 'taking over VA' put to rest and buried for the foreseeable future. 

Even if that recent attempt by Temasek was through the 'backdoor' in a team up through a affiliated company (Broad Peak) with the bondholders was bound to fail.


03 May 2013

Total posts 667

Dogs breakfast.

09 Apr 2020

Total posts 11

Pretty sure you don't want to be an ASX airline for a number of years to come...

24 Aug 2011

Total posts 1195

...and in a complete surprise to no-one, it turns out these two bodies were trying to do a confidential back-deal with Bain which would see them receive more but not the other bondholders.  As suspected, this mob never were interested in running the airline; they just wanted the money and didn't have any interest in the other bondholders or the other unsecured creditors, including staff.

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