Bain Capital Wins Race To Buy Virgin Australia

In a morning of fast-paced developments, one of the two shortlisted bidders to buy Virgin Australia has walked away from the deal. Shortly after, Virgin Australia’s administrators announced the Bain Capital as the preferred party to buy the collapsed airline. It is a sudden and unexpected end to what had been a carefully managed process

Cyrus Capital Partners has withdrawn from the Virgin Australia sale process. Photo: Virgin Australia

Earlier today, New York-based Cyrus Capital Partners withdrew from the bidding process, saying Virgin Australia’s administrators lacked engagement. The surprise last-minute decision left the race to buy Virgin Australia a one-horse affair.

Virgin Australia’s administrator, Deloitte, has since confirmed the other bidder, Bain Capital Partners, has been selected as the preferred bidder. In a statement, Deloitte’s Vaughan Strawbridge said today:

“Bain Capital has presented a strong and compelling bid for the business that will secure the future of Australia’s second airline, thousands of employees and their families, and ensure Australia continues to enjoy the benefits of a competitive aviation sector.

“I would also like to thank the broad range of bidders who participated in this competitive process, including Cyrus Capital Partners, and who worked so hard with us throughout this process.”

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Administrator not returning phone calls

It is a sudden death end to the bidding process after Cyrus Capital Partners dramatically pulled their bid. In a statement on Friday, Cyrus’s founder and chief investment officer, Stephen Freidheim, said the airline’s administrator, Deloitte, was not returning their phone calls.

“On the morning of 22 June 2020, Cyrus presented to the administrators of Virgin Australia Holdings an offer to acquire the airline, its regional business, and the frequent flyer program Velocity, in accordance with the administrators’ procedures.

“However, since then, the administrators have not returned calls, emails, or meaningfully engaged with Cyrus to progress its offer.

“As a result, Cyrus has withdrawn its offer today, 26 June 2020.”

Cyrus Capital says Deloitte is not returning phone calls. Photo: Virgin Australia

A fast turnaround on earlier optimism

That June 22 date was the deadline for final, binding offers to buy Virgin Australia. At the time, Cyrus Capital presented an upbeat, optimistic tone as it briefed stakeholders.

“We think there’s a really sweet spot in the middle where Virgin can play very strongly,” said Cyrus Capital senior adviser Jonathan Peachey last week.

Later this week, Cyrus added further “value improvements” and “other compelling measures.” But now Cyrus says Deloitte was not responsive enough and they’ve exited the race.

“Cyrus firmly believes that the Australian aviation industry has a bright future and would be willing to re-instate our offer if the administrators agree to re-engage in good faith,” this morning’s statement said.

Is there more to this?

The decision left  Bain Capital Partners as the only bidder to buy Virgin Australia. Arguably, it was hard to lose a one-horse race. The notion of a global services firm like Deloitte suddenly not taking phone calls is an interesting one.

But there may also be more to this than meets the eye. In the last week or so, a group of disgruntled bondholders has also emerged as possible buyers. They are not part of the formal bidding process. However, Australian corporate law does allow them to make an offer for the collapsed airline.

Collectively, the Virgin Australia bondholders are owed around US$1.4 billion. As unsecured creditors, their bonds are worth a little as ten cents in the dollar. But a group of them believes they can improve on this. They have come in from the left-field and made a counteroffer to Deloitte.

The plan by bondholders may have something to do with Cyrus Partners’ decision. Photo: Virgin Australia

On Wednesday, bondholders representative Faraday and Partners met with Deloitte. The bondholders offered to pump $637 million into the airline and exchange debt for equity. Virgin Australia would remain publicly listed and keep flying.

“Our plan offers a sustainable capital structure underpinned by public ownership to provide certainty and support the strong operating plan for the airline,” a spokesperson for the bondholders said this week.

Cyrus Capital is believed to have approached Faraday and Company this week in an attempt to broker a deal with bondholders to ward off this counter offer. Their lack of success may have played a role in this morning’s surprise withdrawal.

The bondholders’ bid remains alive. It is external to the bidding process conducted by the administrator.

Deloitte was quick off the mark to confirm Bain Capital Partners as the preferred bidder today following Cyrus’ exit. Beyond acknowledging the input of Cyrus Capital, Deloitte did not respond to questions of unreturned phone calls and locking Cyrus out at the last minute.