The restructuring of Virgin Australia is moving into the next stage following the announcement of the two shortlisted bidders on Tuesday. Boston-based Bain Capital and New York-based Cyrus Capital Partners knocked out three other would-be bidders in what appeared to be a tightly fought contest.
Vaughan Strawbridge, Joint Administrator, and Deloitte Restructuring Services partner said on Tuesday;
“Both Bain Capital and Cyrus Capital Partners are well-funded, have deep aviation experience, and they see real value in the business and its future.”
Two bidders with two different visions
The US firms have different plans for a restructured Virgin Australia. Cyrus Capital has previously said it wanted to keep Virgin Australia flying as a full-service airline, including retaining international flights. In contrast, Bain Capital wants to take Virgin Australia closer to its low-cost origins and will almost certainly ditch the troublesome international routes.
Interestingly, both firms have close ties with Richard Branson, who holds a now worthless 10% stake in Virgin Australia. Bain Capital has indicated that it plans to retain the Virgin branding.
So, what’s next for the duo still in the running? Final, binding offers need to be submitted by June 12, and the final bidder will be named by June 30. Virgin Australia has up to 12,000 creditors (the majority being employees), and the administrator, Deloitte, will need to take the final offer to them for a vote.
Negotiations with creditors will commence
Until now, the bidders had been forbidden to negotiate with creditors. But that condition has been lifted, and aircraft lessors, union groups, and other big creditors could expect over-friendly phone calls from investment bankers on Wednesday morning.
Virgin Australia collapsed owing around US$4.8 billion. Of that, about $1.58 billion was owed to corporate lenders and aircraft financing facilities, $1.3 billion was owed to aircraft lessors, $310 million is owed to employees, and around $1.38 billion is owed to bondholders. It is estimated the winning bid could return as much as US$2.5 billion to creditors.
All would like to see their money back. Of particular concern are outstanding entitlements owed to Virgin Australia’s employees. That’s where the unions come in. Last week, the Australian Council of Trade Unions (ACTU) made clear it expects as many employees as possible to be kept on and all owed entitlements paid. The ACTU has expressed concerns about Bain Capital’s history of cutting workforces.
On the flip side, the new owner of Virgin Australia will want to take on as little pre-existing debt as possible. Finding a happy medium might be a tricky business. It’s made more so by the tight timeline, but Deloitte is keen to get Virgin Australia off its books.
The sale isn’t a done deal yet
Of course, nothing is a done deal yet. If the going gets too tough for either Cyrus Capital or Bain Capital, both could walk away. That could see Virgin Australia liquidated, a firesale, and the pickings would be very slim for creditors.
That outcome might be unlikely, but it cannot be discounted entirely. In the past months, a lot of cashed-up tire kickers having been casting an eye over Virgin Australia. After all, no matter how many billions you have, everyone enjoys a bargain.
With the hoopla over and the nitty-gritty of negotiating about to begin, things might go quiet for a week or two. That wouldn’t be entirely unwelcome. The collapse of Virgin Australia and its subsequent restructure has become so overhyped it risks becoming a victim of its own presumed success.