20 buyers now circling Virgin Australia
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No mate - she's pretty right anytime after 3 pm for the tennis most days of the week. At a pinch, she might also be able to knock off some tennis stuff before 9 am.
Good luck with that one.
Good luck with that one.
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ex the SMH: Virgin bondholders 'will get nothing' after failed creditor play........
Referenced/Article link here: https://www.smh.com.au/business/comp...09-p550yw.html
Extract here:
Rgds
S28
Extract here:
Virgin bondholders 'will get nothing' after failed creditor play
Virgin bondholders 'will get nothing' after failed creditor play
By Patrick Hatch
June 11, 2020 — 12.00am
Bondholders risk walking away from a Virgin Australia fire sale empty handed, with aviation restructuring experts predicting the airline’s new owner will leave nothing on the table for institutions and hundreds of "mum and dad" investors.
The dire warning for holders of $2 billion worth of Virgin's unsecured debt came as the airline's administrator Deloitte told the Morrison government that more financial support was needed to ensure the sale process did not fail, including an extension of the JobKeeper program.
There are growing concerns about how much bondholders will recover from the Virgin sale.
The Sydney Morning Herald and The Age can reveal an attempt to rally unsecured creditors together around a plan to preserve their interest in the business has been wound up after it failed to attract creditors or Deloitte to its cause.
The Australia Connected Aviation Partners (ACAP) consortium was brought together by Sydney-based corporate leadership firm Spiique, and wanted to develop a "plan B" that creditors could fall back on if the package Deloitte put forward in August was unacceptable or fell over.
Spiique co-founder David Hewish said the group was concerned all the value in Virgin - and the upside from a future recovery - would be handed over to its new investors.
“Our suggestion was to do something to create an alternative - to fix the business plan with the support of the stakeholders and then compare that with whatever the sale process creates," said Mr Hewish, a restructuring veteran formerly with EY and KordaMentha.
"It would have created a floor that was an alternative to liquidation."
ACAP's proposal included bondholders converting their debt to equity in the company, rolling it over into a recapitalised business or taking a cash dividend. Virgin could have been sold at a later date - and for a better price - once the business had been more comprehensively restructured.
ACAP had the financial backing of wealthy American entrepreneur and venture capitalist Augie Fabela, who co-founded the NASDAQ-listed telecommunications group VEON, and recruited executives, including former Aer Lingus CEO Dermot Mannion and former AMP Bank CEO Sally Bruce to its team.
But ACAP wound down on Tuesday after failing to attract interest from larger creditors and being denied access to the sale process by Deloitte because it did not have secured funding.
Mr Hewish said he spoke to several institutional bondholders who were "preparing for the worst" and were resigned to the fact they will not recover any of the money they are owed.
"The most likely outcome is... there will be nothing for distribution to the creditors," Mr Hewish said.
“It feels like a $1 deal because there’s too many balls in the air - what are the [wage agreements] going to be for the staff, what are the leasing arrangements going to be for the leased aircraft.
"I just can’t see how anyone could convince their investment committee to handover a couple of hundred million dollars to be distributed to the former creditors.”
Virgin's bondholders include large institutional investors as well as hundreds of "mum and dad" retail investors, many of whom bought in as recently as November, when Virgin raised $900 million to take back full ownership of its frequent flyer business.
Sydney based advisory Faraday is trying to organise Virgin's bondholders. But having "meekly stood by the sidelines and done nothing", Mr Hewish said bondholders would have to either accept Deloitte's deal or let Virgin go into liquidation.
Separately, Deloitte wrote to the government on Tuesday asking it to extend the Jobkeeper wage subsidy for airlines to give Virgin's shortlisted suitors - Bain Capital and Cyrus Capital Partners - confidence to make binding bids. It also asked for a consumer ticket guarantee to give the public confidence in the airline, which collapsed in April owing $6.8 billion.
Bain and Cyrus have until June 22 to lodge binding bids and Deloitte will put a preferred rescue package to a creditors' vote in mid-August. There is growing concern among bondholders about how much of their investment they will recover.
June 11, 2020 — 12.00am
Bondholders risk walking away from a Virgin Australia fire sale empty handed, with aviation restructuring experts predicting the airline’s new owner will leave nothing on the table for institutions and hundreds of "mum and dad" investors.
The dire warning for holders of $2 billion worth of Virgin's unsecured debt came as the airline's administrator Deloitte told the Morrison government that more financial support was needed to ensure the sale process did not fail, including an extension of the JobKeeper program.
There are growing concerns about how much bondholders will recover from the Virgin sale.
The Sydney Morning Herald and The Age can reveal an attempt to rally unsecured creditors together around a plan to preserve their interest in the business has been wound up after it failed to attract creditors or Deloitte to its cause.
The Australia Connected Aviation Partners (ACAP) consortium was brought together by Sydney-based corporate leadership firm Spiique, and wanted to develop a "plan B" that creditors could fall back on if the package Deloitte put forward in August was unacceptable or fell over.
Spiique co-founder David Hewish said the group was concerned all the value in Virgin - and the upside from a future recovery - would be handed over to its new investors.
“Our suggestion was to do something to create an alternative - to fix the business plan with the support of the stakeholders and then compare that with whatever the sale process creates," said Mr Hewish, a restructuring veteran formerly with EY and KordaMentha.
"It would have created a floor that was an alternative to liquidation."
ACAP's proposal included bondholders converting their debt to equity in the company, rolling it over into a recapitalised business or taking a cash dividend. Virgin could have been sold at a later date - and for a better price - once the business had been more comprehensively restructured.
ACAP had the financial backing of wealthy American entrepreneur and venture capitalist Augie Fabela, who co-founded the NASDAQ-listed telecommunications group VEON, and recruited executives, including former Aer Lingus CEO Dermot Mannion and former AMP Bank CEO Sally Bruce to its team.
But ACAP wound down on Tuesday after failing to attract interest from larger creditors and being denied access to the sale process by Deloitte because it did not have secured funding.
Mr Hewish said he spoke to several institutional bondholders who were "preparing for the worst" and were resigned to the fact they will not recover any of the money they are owed.
"The most likely outcome is... there will be nothing for distribution to the creditors," Mr Hewish said.
“It feels like a $1 deal because there’s too many balls in the air - what are the [wage agreements] going to be for the staff, what are the leasing arrangements going to be for the leased aircraft.
"I just can’t see how anyone could convince their investment committee to handover a couple of hundred million dollars to be distributed to the former creditors.”
Virgin's bondholders include large institutional investors as well as hundreds of "mum and dad" retail investors, many of whom bought in as recently as November, when Virgin raised $900 million to take back full ownership of its frequent flyer business.
Sydney based advisory Faraday is trying to organise Virgin's bondholders. But having "meekly stood by the sidelines and done nothing", Mr Hewish said bondholders would have to either accept Deloitte's deal or let Virgin go into liquidation.
Separately, Deloitte wrote to the government on Tuesday asking it to extend the Jobkeeper wage subsidy for airlines to give Virgin's shortlisted suitors - Bain Capital and Cyrus Capital Partners - confidence to make binding bids. It also asked for a consumer ticket guarantee to give the public confidence in the airline, which collapsed in April owing $6.8 billion.
Bain and Cyrus have until June 22 to lodge binding bids and Deloitte will put a preferred rescue package to a creditors' vote in mid-August. There is growing concern among bondholders about how much of their investment they will recover.
S28
I have been following Virgin's progress for quite some time now towards hopefully a resurrection soon but am starting to feel very uneasy about it succeeding.
Things are starting to look fairly messy and it would appear that without Government support for a few months it will quite likely not succeed and it seems that our Great Leader Scomo is not going to help - yet!
This would be a tragedy not only for the staff but the travelling public.
My own personal opinion of VA is that it's was amongst the best there is or was , especially in Business Class.
A truly great Airline!!
I fervently hope it does succeed in re starting in the same format as it was .
Let's hope so for all of the wonderful staff and also to stick it up the Leprechaun!
Things are starting to look fairly messy and it would appear that without Government support for a few months it will quite likely not succeed and it seems that our Great Leader Scomo is not going to help - yet!
This would be a tragedy not only for the staff but the travelling public.
My own personal opinion of VA is that it's was amongst the best there is or was , especially in Business Class.
A truly great Airline!!
I fervently hope it does succeed in re starting in the same format as it was .
Let's hope so for all of the wonderful staff and also to stick it up the Leprechaun!
Last edited by RodH; 11th Jun 2020 at 05:58.
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Maybe, but a consistently badly run business that rarely made a profit and has caused the destruction of billions of dollars of shareholder and investor capital! Not sure that the unsecured bond holders about to lose all their hard earned or the investors about to take a significant haircut would agree with you either.
In my book, a truly great airline is also a consistently profitable and sustainable business for both investors and employees. Virgin has been neither and unlike most investment disclosures, past performance is the best predictor of future performance. The old model and the old team ain’t going to work IMHO!
In my book, a truly great airline is also a consistently profitable and sustainable business for both investors and employees. Virgin has been neither and unlike most investment disclosures, past performance is the best predictor of future performance. The old model and the old team ain’t going to work IMHO!
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Without, wanting too say 'much' and attract 'fire'....., and divert the seriousness/attention of the Issue/'s at hand.
The observation, could/may- be 'reasonably' made- that the process, is not 'unified' in the 'cadence' of events/process....????, or Not- your call.
Unsecured 'they' (said, Bond Holders) are- however, there is now $2xBillion Out-Side the Tent on a $7B gig....
Ta- wishing for the best..... for All.
Rgds
S28- BE
The observation, could/may- be 'reasonably' made- that the process, is not 'unified' in the 'cadence' of events/process....????, or Not- your call.
Unsecured 'they' (said, Bond Holders) are- however, there is now $2xBillion Out-Side the Tent on a $7B gig....
Ta- wishing for the best..... for All.
Rgds
S28- BE
Rod, I’m sorry to say that “Venture Capital” isn’t . At least in Australian circumstances VC’S only invest in a sure thing. The crap about risk and uncertainty is just BS. Bain and Cyrus will want government guarantees that they will at least double their money even if they have to walk away in a few months time. The idea that they are superwomen who are going to try every trick in the book to restart virgin is BS. They try and engineer a situation where they can’t lose, otherwise they don’t invest. Sorry to be blunt.
Expect to see dire headlines as the potential buyers and the administrators try and rumble the government into guaranteeing that VB will survive. Unfortunately for you the correct answer from government is $$#@off.
To do otherwise means you get headlines in three years time like:”Bain bought virgin for $2.00 and now is walking away with 3 billion taxpayer dollars.”
Government is going to make Bain work for a return. My experience is that very few VCs actually want to do that. Bain will have probably ten other deals like virgin on its short list right now.
Hope for the best, prepare for the worst. Good luck!
Expect to see dire headlines as the potential buyers and the administrators try and rumble the government into guaranteeing that VB will survive. Unfortunately for you the correct answer from government is $$#@off.
To do otherwise means you get headlines in three years time like:”Bain bought virgin for $2.00 and now is walking away with 3 billion taxpayer dollars.”
Government is going to make Bain work for a return. My experience is that very few VCs actually want to do that. Bain will have probably ten other deals like virgin on its short list right now.
Hope for the best, prepare for the worst. Good luck!
Last edited by Sunfish; 11th Jun 2020 at 09:46.
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To do otherwise means you get headlines in three years time like:”Bain bought virgin for $2.00 and now is walking away with 2billion taxpayer dollars.”
Yes Des. They want a guaranteed return on investment otherwise they aren’t interested. If it was me and I could make the government blink, I would sell all the cash positive assets to myself - terminal leases, real estate, software, aircraft leases, facilities, etc. I would then parcel up the operational structure and float it to the mums and dads- leaving multi year contracts behind with all the now Bain owned asset companies that allowed them to strip cash out for years to come.
Thats the model/; strip the carcass, float what’s left, profit!
Thats the model/; strip the carcass, float what’s left, profit!
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Cash-strapped airline to lift domestic flights
ROBYN IRONSIDE
Virgin Australia is not giving up its domestic market share without a fight, stacking on capacity to match larger rival Qantas as travel restrictions ease.Despite a precarious financial position as the airline navigates administration, Virgin Australia will increase services to 320 a week by early July, from just 76 currently.
It’s understood management is hopeful the flights will generate much needed revenue, with existing cash reserves not expected to last past August.
Virgin Australian entered administration on April 21 with debts of $6.8bn, and was left with about $100m in May.
Group chief commercial officer John MacLeod said more services and frequencies were being added in response to returning demand for air travel.
“By early July, we will have gradually added approximately 30,000 seats across 320 flights per week to our schedule — more than doubling our capacity and providing more flexibility for guests,” Mr MacLeod said.
“It’s early days, but these services will be a welcomed boost to Australia’s tourism industry and help the nation’s economy and aviation sector to rebuild.”
He said the services would also allow the airline to bring back to work some of the 8200 employees currently stood down.
Virgin’s announcement came as credit ratings agency Moody’s forecast Qantas’s earnings and credit metrics would recover from the COVID-19 crisis before other global carriers.
Moody’s cited a number of reasons for its optimism, including Qantas’s strong balance sheet prior to the pandemic and the fact Qantas’ main competitor was in administration.
“As Qantas ramps up capacity from July, we expect ongoing uncertainty related to Virgin to benefit Qantas, improving cash flow and profitability,” said the Moody’s report by vice-president and senior credit officer Ian Chitterer and associate analyst David Xu. Other factors included Australia and NZ’s success in controlling the coronavirus outbreak and the strength of Qantas’s domestic business and loyalty program, accounting for up to 80 per cent of earnings.
The report said the re-emergence of trans-Tasman travel in September also provided significant opportunity for Qantas to increase yields, in the absence of capacity and competition.
“There is uncertainty as to if and when Virgin Australia will resume flights and to what extent it will participate in trans-Tasman routes,” it said. “All of this should be supportive of yields at least until the end of the key December-January holiday season.”
The ramp-up of domestic flying by Qantas and Virgin will coincide with a range of new measures designed to enhance passenger safety and wellbeing, before, during and after flights.
From Friday, passengers should expect more sanitiser stations at airports, and the provision of masks and antibacterial wipes on board aircraft.
Virgin Australia will ask passengers to fill out a health questionnaire at check-in, to ensure they are fit to fly, and to help with contact tracing.
Both airlines have stressed that the risk of viral transmission on aircraft is very low due to the hospital-grade air filters and high seat backs. While Qantas will not exercise social distancing in the cabin, Virgin’s group medical officer Dr Sara Souter said it would try to space passengers out as much as possible.
Business Review
Cash-strapped airline to lift domestic flights
Tiger is over. Should have happened 10 years ago. Everyone got the sack except 737 Melbourne Cabin Crew.
Evertonian
Very true but 10 CEOs later I would say nobody is clearly capable so just shelve it.
They need to cut it loose from the Village people for it to work. De Virginise it.
They need to cut it loose from the Village people for it to work. De Virginise it.
Evertonian
But yes, totally agree.Small start up, small HQ with minimal numbers...if the Admins wanted a quick return for creditors, that was it...IMHO.
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Looks like things are getting pretty bad,
Inflight VA Meals, now $2 a piece.... bargain.
https://www.ozbargain.com.au/node/544372
Fancy a taste of flight from your living room?
Inflight VA Meals, now $2 a piece.... bargain.
https://www.ozbargain.com.au/node/544372
Fancy a taste of flight from your living room?
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ex the AFR- 13 Jun 20: Brighter skies as Virgin sale nears.......
Referenced/Article link here: https://www.afr.com/chanticleer/brig...0200612-p5523t
Extract here:
So, circa 6,000 bondholders in the Wild, carrying 2x $B- in a 'number and value' sense......
Rgds all
S28- BE
Extract here:
- Chanticleer
Jun 13, 2020 – 12.00am
As the clock ticks towards the June 22 deadline for final bids for the purchase of the insolvent Virgin Australia, there is quite a lot of good news emerging in the aviation sector.
Friday marked the end of federal government underwriting of flights on major domestic routes and the return of Qantas and Virgin operating under normal commercial terms.
The government support will switch to other, more marginal routes, that the two airlines won't fly because travel demand is not at levels that make them viable.
Qantas chief executive Alan Joyce travelled on a flight from Melbourne to Sydney on Friday. He says some fares could be as low as $19 when travel resumes.
Australians thinking about busting out of the lockdown and travelling by plane to a domestic holiday destination are likely to be inundated with offers of cheap seats.
To get an idea of what is coming down the pipeline, Jetstar said this week it would resume domestic flying in New Zealand on July 1, with fares available from $21 each.
The resumption of New Zealand services will see Jetstar flying 75 return flights per week to five destinations, returning to about 60 per cent of its normal domestic schedule. Customers with bookings on the remaining 40 per cent of flights have been contacted and offered a range of options.
New Zealand is ahead of the curve on most things related to coronavirus. Its aviation activity is expected to return to half the normal level by the end of this month.
In Australia, Qantas this week returned to 15 per cent of its pre-COVID capacity on the Sydney-Melbourne route, or about three times its previous level of services.
Strong signal
Qantas chief executive Alan Joyce sent a strong signal to potential travellers on Friday when he was photographed sitting in the middle seat on a flight from Melbourne to Sydney.
Joyce, who was wearing a face mask, has talked about $19 fares once the market opens up in Australia. This should encourage people to get back in the air.
Matt Ryan, an analyst at investment bank UBS, expects a strong domestic rebound in leisure travel in coming months as Australians start spending the extra $30 billion saved during the coronavirus pandemic.
He said in a note to clients on Friday the big swing factor would be the opening of state borders. Queensland alone accounts for 28 per cent of interstate overnight stays.
With a domestic aviation profit pool of about $1.1 billion, there is clearly scope for Virgin to make money if it can cut its costs and return to the market share it had before COVID-19 arrived.
Ryan said that over the past five years Qantas had captured 88 per cent of the profit pool while only carrying 61 per cent of the passengers.
"Given the uncertainty around the second carrier, we believe Qantas is currently seeing a significant increase in booking market share," he said.
Analysts at UBS and Morgan Stanley are the two most optimistic when it comes to the prospects for Qantas. Their share price targets are $5.50 and $5.20 respectively, compared with Friday's close of $4.49.
The key questions being asked by everyone in aviation and tourism circles are: How is the Virgin sales process travelling? When will it be back up and flying? And can it come out the other side of its collapse without government assistance?
Virgin's administrator, Vaughan Strawbridge, of Deloitte, remains immensely confident he can get a deal done with either Bain Capital or Cyrus Capital Partners in the next 10 days.
Observers of the sale process, however, were given cause for concern when Strawbridge wrote a letter to Prime Minister Scott Morrison and senior cabinet members saying the bidders still needed more clarity on government support measures or they may pull out.
The letter suggested that unless those indications of support were given, it would hamper the ability for final bids to be submitted.
Also, Deloitte asked the government to consider guaranteeing future ticket sales to encourage people to book with the airline.
The letter put a fresh complexion on Strawbridge's decision to reject a deal from BGH Capital quite early in the insolvency to buy the business. Chanticleer understands BGH wanted exclusivity to give it more negotiating power with the unions, aircraft lessors and bondholders.
If Strawbridge had gone for the rapid-fire BGH deal, a sale would probably have been consummated about a week ago.
With BGH out of the official sales process, Virgin's future looks to be increasingly in the hands of the bondholders who tipped in about $2 billion in unsecured funds late last year to pay for the balance of the Velocity Frequent Flyer business not owned by the airline.
It is believed the BGH deal would have seen the bondholders get about 1¢ in the dollar. But the bonds have been trading between 12¢ and 25¢ in the dollar.
Disproportionate amount of power
Investors have been buying the bonds in the expectation of making a profit. They have been doing so in the knowledge that the bonds could carry a disproportionate amount of power when creditors vote to approve the sale in August.
It is believed the adviser to the bondholders, Faraday, has legal advice that the 6000 investors who own the bonds, mainly self-managed super funds, can vote as individuals rather than in a block.
The 9000 employees of Virgin each get a vote. But approval of the sale requires a majority by both volume and value.
It is possible to build a scenario where the bondholders come away from the creditors' meeting with debt converted into equity and some level of rollover debt.
The bondholders agitated quite hard to get access to the Virgin data room. They succeeded in doing so, but this immediately precluded them from talking to the two parties buying the business.
Related
Bondholders find way into Virgin data room
It is not clear why the bondholders needed to understand the profit drivers of the business when the future business model is within the walls of Bain and Cyrus.
A lot is riding on the successful completion of the Virgin sales process. A failure to complete the sale could lead to liquidation and leave the government holding a $450 million liability for employee benefits.
Also, the two bidders would lose all the money spent getting to this point. It is believed it has cost them more than $15 million.
Tony Boyd is the Chanticleer columnist. He has more than 35 years' experience as a finance journalist. Connect with Tony on Twitter. Email Tony at [email protected]
Brighter skies as Virgin sale nears
Good news in the domestic aviation industry is not necessarily being shared equally between the two players - Qantas and Virgin. But there is optimism Australians will soon start flying for leisure again.Jun 13, 2020 – 12.00am
As the clock ticks towards the June 22 deadline for final bids for the purchase of the insolvent Virgin Australia, there is quite a lot of good news emerging in the aviation sector.
Friday marked the end of federal government underwriting of flights on major domestic routes and the return of Qantas and Virgin operating under normal commercial terms.
The government support will switch to other, more marginal routes, that the two airlines won't fly because travel demand is not at levels that make them viable.
Qantas chief executive Alan Joyce travelled on a flight from Melbourne to Sydney on Friday. He says some fares could be as low as $19 when travel resumes.
Australians thinking about busting out of the lockdown and travelling by plane to a domestic holiday destination are likely to be inundated with offers of cheap seats.
To get an idea of what is coming down the pipeline, Jetstar said this week it would resume domestic flying in New Zealand on July 1, with fares available from $21 each.
The resumption of New Zealand services will see Jetstar flying 75 return flights per week to five destinations, returning to about 60 per cent of its normal domestic schedule. Customers with bookings on the remaining 40 per cent of flights have been contacted and offered a range of options.
New Zealand is ahead of the curve on most things related to coronavirus. Its aviation activity is expected to return to half the normal level by the end of this month.
In Australia, Qantas this week returned to 15 per cent of its pre-COVID capacity on the Sydney-Melbourne route, or about three times its previous level of services.
Strong signal
Qantas chief executive Alan Joyce sent a strong signal to potential travellers on Friday when he was photographed sitting in the middle seat on a flight from Melbourne to Sydney.
Joyce, who was wearing a face mask, has talked about $19 fares once the market opens up in Australia. This should encourage people to get back in the air.
Matt Ryan, an analyst at investment bank UBS, expects a strong domestic rebound in leisure travel in coming months as Australians start spending the extra $30 billion saved during the coronavirus pandemic.
He said in a note to clients on Friday the big swing factor would be the opening of state borders. Queensland alone accounts for 28 per cent of interstate overnight stays.
With a domestic aviation profit pool of about $1.1 billion, there is clearly scope for Virgin to make money if it can cut its costs and return to the market share it had before COVID-19 arrived.
Ryan said that over the past five years Qantas had captured 88 per cent of the profit pool while only carrying 61 per cent of the passengers.
"Given the uncertainty around the second carrier, we believe Qantas is currently seeing a significant increase in booking market share," he said.
Analysts at UBS and Morgan Stanley are the two most optimistic when it comes to the prospects for Qantas. Their share price targets are $5.50 and $5.20 respectively, compared with Friday's close of $4.49.
The key questions being asked by everyone in aviation and tourism circles are: How is the Virgin sales process travelling? When will it be back up and flying? And can it come out the other side of its collapse without government assistance?
Virgin's administrator, Vaughan Strawbridge, of Deloitte, remains immensely confident he can get a deal done with either Bain Capital or Cyrus Capital Partners in the next 10 days.
Observers of the sale process, however, were given cause for concern when Strawbridge wrote a letter to Prime Minister Scott Morrison and senior cabinet members saying the bidders still needed more clarity on government support measures or they may pull out.
The letter suggested that unless those indications of support were given, it would hamper the ability for final bids to be submitted.
Also, Deloitte asked the government to consider guaranteeing future ticket sales to encourage people to book with the airline.
The letter put a fresh complexion on Strawbridge's decision to reject a deal from BGH Capital quite early in the insolvency to buy the business. Chanticleer understands BGH wanted exclusivity to give it more negotiating power with the unions, aircraft lessors and bondholders.
If Strawbridge had gone for the rapid-fire BGH deal, a sale would probably have been consummated about a week ago.
With BGH out of the official sales process, Virgin's future looks to be increasingly in the hands of the bondholders who tipped in about $2 billion in unsecured funds late last year to pay for the balance of the Velocity Frequent Flyer business not owned by the airline.
It is believed the BGH deal would have seen the bondholders get about 1¢ in the dollar. But the bonds have been trading between 12¢ and 25¢ in the dollar.
Disproportionate amount of power
Investors have been buying the bonds in the expectation of making a profit. They have been doing so in the knowledge that the bonds could carry a disproportionate amount of power when creditors vote to approve the sale in August.
It is believed the adviser to the bondholders, Faraday, has legal advice that the 6000 investors who own the bonds, mainly self-managed super funds, can vote as individuals rather than in a block.
The 9000 employees of Virgin each get a vote. But approval of the sale requires a majority by both volume and value.
It is possible to build a scenario where the bondholders come away from the creditors' meeting with debt converted into equity and some level of rollover debt.
The bondholders agitated quite hard to get access to the Virgin data room. They succeeded in doing so, but this immediately precluded them from talking to the two parties buying the business.
Related
Bondholders find way into Virgin data room
It is not clear why the bondholders needed to understand the profit drivers of the business when the future business model is within the walls of Bain and Cyrus.
A lot is riding on the successful completion of the Virgin sales process. A failure to complete the sale could lead to liquidation and leave the government holding a $450 million liability for employee benefits.
Also, the two bidders would lose all the money spent getting to this point. It is believed it has cost them more than $15 million.
Tony Boyd is the Chanticleer columnist. He has more than 35 years' experience as a finance journalist. Connect with Tony on Twitter. Email Tony at [email protected]
Rgds all
S28- BE
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A different spin in today’s Australian
What the Virgin bidders really fighting over
TERRY McCRANN
The funniest — sick — joke going around at the moment is the idea that we have two groups in an auction to buy Virgin; to take their chances on running a weak second airline against the dominant, financially strong and superbly structured and focused Qantas, into the challenges and monumental uncertainties facing airlines in the post-virus world. In fact, the only thing they are “bidding” to buy is the right to get a range of other parties to donate their money to ensure that one of these Wall Street vultures can extract the greatest profit with the least risk and indeed the smallest financial contribution from the Virgin carcass. The latest group who they want to put their hands in their pockets to ensure higher profits for them is you — the taxpayer. They want the government to give them — either Bain Capital or Cyrus — another $180m or so by exclusively extending JobKeeper for Virgin Two. To have the taxpayer effectively pay the airline’s salary bill for the first six months of its life under its new owner. The best way to understand what is going on in the auction behind closed doors is by way of this example: consider two people bidding to buy a house worth around, say $2m. The one offering, say, $2.01m ends up winning over the other bid of, say, $2m flat. The $2.01m is paid; they own the house free and clear. In the Virgin case the $2m “house” comes with a, say, $4m linked mortgage. It also comes with an order to spend $1m in mandatory repairs. Clearly no one in their right mind would happily pay the $2m for the house, only to also pick up an immediate $5m liability. They’d in effect be paying $7m for a $2m asset. That is to say, the house is really worthless unless and until those liabilities can be separated or cancelled. That is exactly the same with Virgin, except we are talking in billions, not millions. The “cleanest” way to resolve the Virgin situation would be to put it into liquidation; cashing in the assets (essentially, half the planes; in liquidation, the other assets would all but evaporate); and paying varying cents in the dollar (down to zero) to the various liability tiers. This worst-case “doomsday” outcome provides the opportunity for main-chancers like Bain and Cyrus to make two and two add up to not just five but at least six, as the “better” alternative. They do this by creating a dynamic where those creditors will be offered variously more cents in the dollar (with some very small crumbs for shareholders, who would otherwise get zip) than would be likely to happen under the “doomsday” alternative. Now some of the “maths magic” is real: those assets which have value in a continuing Virgin but which would go to zero in a liquidation — its airport slots, it’s broad IP, its software, its ticketing, its global partnerships, indeed the sunk costs in its staff, and so on. Then there’s the 60 or so owned planes — their value in a continuing revenue-generating business as opposed to what you could sell them for, at a time when there is going to a be a lot, and I mean a lot, of planes for sale. But that aviation reality introduces a huge and I mean huge risk on the other side of these valuation scenarios: that you could buy cheap but end up losing money and losing buckets of it from the new get-go . To go back to my housing example; it would be great to get the $2m house for, say, $1.5m upfront and without any of those $7m in liabilities. But not so good if you locked yourself into $200,000 a year of maintenance and repairs; you’d quickly chew away your $500,000 upfront profit. That’s the key point to understand about the so-called bidders for Virgin. What they are really bidding to buy is that upfront profit. It is the (reasonable and risk-adjusted ) value of the “new” Virgin entity less the equity they have to put in and could lose. The winner will be the one of the two prepared to “bid” the lower comparative upfront profit — a profit that is going to come out of the pockets of the various parties owed the bits of the $7bn of Virgin liabilities. All these creditors have to not only lose some percentages of the money owed them (in aggregate, the difference between Virgin’s assets and liabilities), they also have to contribute to the winning bidder’s upfront profit. The offsetting lure is that in doing so they still get a higher figure than would theoretically otherwise be the case. Three components are critical for the winning “bidder” . To minimise the amount of capital they put up and is at risk. The less the capital, the smaller the dollar upfront profit they need to be gifted by the creditors to get the same rate of profit return. They have to optimise the Virgin Two operating structure and dynamics: how many aircraft, staff numbers, IP, ticketing, relationships. The post-virus uncertainties present both huge challenges and even greater opportunities precisely because of the financial engineering in and around the “offer” process. The more money you can get third parties to contribute directly or indirectly the better. It not only does the obvious — put more money into the pot — but allows more financial engineering and leverage. Like with JobKeeper, the extra $180m coming from the taxpayer might be able to be leveraged into, say, a $360m additional benefit to the buyer. Win-win . But it all hangs on getting to first base. We are yet to see whether there is a “there” there for a future Virgin. This is not like 9/11, which was ultimately if indirectly airline-friendly . Just as the post-virus world more generally won’t be like the post-GFC one.
What the Virgin bidders really fighting over
TERRY McCRANN
The funniest — sick — joke going around at the moment is the idea that we have two groups in an auction to buy Virgin; to take their chances on running a weak second airline against the dominant, financially strong and superbly structured and focused Qantas, into the challenges and monumental uncertainties facing airlines in the post-virus world. In fact, the only thing they are “bidding” to buy is the right to get a range of other parties to donate their money to ensure that one of these Wall Street vultures can extract the greatest profit with the least risk and indeed the smallest financial contribution from the Virgin carcass. The latest group who they want to put their hands in their pockets to ensure higher profits for them is you — the taxpayer. They want the government to give them — either Bain Capital or Cyrus — another $180m or so by exclusively extending JobKeeper for Virgin Two. To have the taxpayer effectively pay the airline’s salary bill for the first six months of its life under its new owner. The best way to understand what is going on in the auction behind closed doors is by way of this example: consider two people bidding to buy a house worth around, say $2m. The one offering, say, $2.01m ends up winning over the other bid of, say, $2m flat. The $2.01m is paid; they own the house free and clear. In the Virgin case the $2m “house” comes with a, say, $4m linked mortgage. It also comes with an order to spend $1m in mandatory repairs. Clearly no one in their right mind would happily pay the $2m for the house, only to also pick up an immediate $5m liability. They’d in effect be paying $7m for a $2m asset. That is to say, the house is really worthless unless and until those liabilities can be separated or cancelled. That is exactly the same with Virgin, except we are talking in billions, not millions. The “cleanest” way to resolve the Virgin situation would be to put it into liquidation; cashing in the assets (essentially, half the planes; in liquidation, the other assets would all but evaporate); and paying varying cents in the dollar (down to zero) to the various liability tiers. This worst-case “doomsday” outcome provides the opportunity for main-chancers like Bain and Cyrus to make two and two add up to not just five but at least six, as the “better” alternative. They do this by creating a dynamic where those creditors will be offered variously more cents in the dollar (with some very small crumbs for shareholders, who would otherwise get zip) than would be likely to happen under the “doomsday” alternative. Now some of the “maths magic” is real: those assets which have value in a continuing Virgin but which would go to zero in a liquidation — its airport slots, it’s broad IP, its software, its ticketing, its global partnerships, indeed the sunk costs in its staff, and so on. Then there’s the 60 or so owned planes — their value in a continuing revenue-generating business as opposed to what you could sell them for, at a time when there is going to a be a lot, and I mean a lot, of planes for sale. But that aviation reality introduces a huge and I mean huge risk on the other side of these valuation scenarios: that you could buy cheap but end up losing money and losing buckets of it from the new get-go . To go back to my housing example; it would be great to get the $2m house for, say, $1.5m upfront and without any of those $7m in liabilities. But not so good if you locked yourself into $200,000 a year of maintenance and repairs; you’d quickly chew away your $500,000 upfront profit. That’s the key point to understand about the so-called bidders for Virgin. What they are really bidding to buy is that upfront profit. It is the (reasonable and risk-adjusted ) value of the “new” Virgin entity less the equity they have to put in and could lose. The winner will be the one of the two prepared to “bid” the lower comparative upfront profit — a profit that is going to come out of the pockets of the various parties owed the bits of the $7bn of Virgin liabilities. All these creditors have to not only lose some percentages of the money owed them (in aggregate, the difference between Virgin’s assets and liabilities), they also have to contribute to the winning bidder’s upfront profit. The offsetting lure is that in doing so they still get a higher figure than would theoretically otherwise be the case. Three components are critical for the winning “bidder” . To minimise the amount of capital they put up and is at risk. The less the capital, the smaller the dollar upfront profit they need to be gifted by the creditors to get the same rate of profit return. They have to optimise the Virgin Two operating structure and dynamics: how many aircraft, staff numbers, IP, ticketing, relationships. The post-virus uncertainties present both huge challenges and even greater opportunities precisely because of the financial engineering in and around the “offer” process. The more money you can get third parties to contribute directly or indirectly the better. It not only does the obvious — put more money into the pot — but allows more financial engineering and leverage. Like with JobKeeper, the extra $180m coming from the taxpayer might be able to be leveraged into, say, a $360m additional benefit to the buyer. Win-win . But it all hangs on getting to first base. We are yet to see whether there is a “there” there for a future Virgin. This is not like 9/11, which was ultimately if indirectly airline-friendly . Just as the post-virus world more generally won’t be like the post-GFC one.
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Terry McCrann in the past 20 years has never ever written one good thing about Virgin. He has a major conflict of interest (has QF shares fly's in the pointy end of the rat).
A carcass, a funny sick joke how nice of you when I'm trying to feed the family. If I ever meet him in person and after a very irate conversation I would conclude you are a crab.
A carcass, a funny sick joke how nice of you when I'm trying to feed the family. If I ever meet him in person and after a very irate conversation I would conclude you are a crab.