Good morning, my name is Bond. As Deloitte’s team of administrators were about to finalise a deal to sell Virgin Australia, they would be choking on their breakfast today as the Virgin bond holders launched a last minute rescue bid. A bid which may be hard to resist.
It is a bid Deloitte cannot ignore, despite the lateness of the hour and no doubt enormous pressure from Bain Capital and Cyrus Capital Partners – the shortlisted bidders for the failed airline. One may wonder what took them so long, but negotiations between the 30-odd institutional bond holders would no doubt have been complex.
In summary, the bond holders are offering to recapitalise the airline in return for recouping 70% of their debt as equity. Under a private equity deal they would likely get none. They propose to re-list the airline on the ASX with a considerably more attractive balance sheet, and up to $1 billion in cash to weather the on-going storm. Nominally, the suggestion is a market cap of the re-listed airline of $1.4 billion. Considering Deloitte’s “aspirational” valuation of a recapitalised Virgin at $4 billion, they will be hard pressed to argue against the upside for shareholders.
At this stage it is not entirely clear if the same deal (70 cents to the dollar) will be offered to unsecured trade creditors, nor how they would fare in comparison to the private equity deals already on the table.
But the real question now is how the Government(s) will act. The Federal Government has so far stood on the sidelines, the Queensland Government lobbed a $200 mill proposal to contribute to a rescue, and other State Governments will also be watching closely.
The bond holder deal would guarantee workers entitlement, potentially restart the airline as an Australian company, with the existing management team running it, frequent flyer entitlements honoured, and not cost tax payers a cent. Although it is not for the Government to interfere directly, they would desperately want at least to be seen as part of what could be a much needed good news story.
Richard Branson – well known to love his dogs – may well be wagging his tail, too.