Bondholders dealt big blow in their bid for Virgin Australia

Sydney, Australia - October 7, 2013: Virgin Australia Airlines Boeing 737 airliner landing at Sydney Airport.

The hopes of Virgin Australia’s bondholders in blocking the airline’s sale to Bain Capital have been all but dashed following a Federal Court hearing.

The bondholders, made up of hedge funds Broad Peak Investment and Tor Investment Management, have been trying to have their alternative proposal for the airline counted as an alternative to Bain Capital’s offer that was chosen by Virgin’s administrators in June.

Broad Peak and Tor want to inject $800 million of new capital into the struggling carrier as part of their plan.

The bondholders would also provide $125 million worth of interim funding, and have their $2 billion in debt converted into equity in a reborn Virgin Australia, under their proposal.

It was the goal of the bondholders to have their proposed deed of company arrangement (DOCA) voted on against Bain’s at the second meeting of Virgin’s creditors on 4 September.

However, Justice John Middleton rejected the application made by Broad Peak and Tor at yesterday’s hearing.

“There will be no orders made in relation to ballots and proxy voting,” he said.

Justice Middleton also rejected the bondholders’ request to have a “facilitator” (aka an independent party) sit in on the second creditors’ meeting to help manage talks with the various stakeholders.

Bain Capital welcomed Justice Middleton’s decision to dismiss in its entirety the application made by the bondholders.

“Bain Capital’s key focus is getting through administration to ensure Virgin Australia fights another day and has the chance to rebuild,” a spokesperson for the private equity firm said.

“We have developed a plan that will secure approximately 6,000 jobs once market demand recovers, with potential to increase to 8,000 jobs in the future.

“We all want a stronger, more profitable and competitive Virgin Australia coming out of voluntary administration, and will continue to focus on making that happen.”

Virgin’s administrators also welcomed the court outcome.

A Deloitte spokesperson said the administrators “have always been focused on the task at hand, which is to restructure the business and provide a strong foundation for its future under new ownership”.

“Work continues on preparing the report to creditors for distribution on 25 August, ahead of the second meeting on 4 September,” the spokesperson said.

Rob Sherrard, who has been advising the bondholders on their bid alongside four other former executives of Virgin Blue, told Travel Weekly: “We are disappointed in the outcome and are now waiting on advice from the bondholders and their lawyers as to next steps.”

Representatives for the bondholders declined to offer immediate comment. However, it is anticipated that they will pursue further legal action to have their proposed DOCA for Virgin considered by creditors.

Featured image source: iStock/Ryan Fletcher

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administrators airline aviation Bain Capital bondholders Broad Peak Investment Justice John Middleton Rob Sherrard Tor Investment Management virgin virgin australia voluntary administration