Virgin Australia's unsecured creditors set to take big hit

SYDNEY • Unsecured creditors of Virgin Australia Holdings will lose almost all their money under a A$3.5 billion (S$3.4 billion) deal to sell the collapsed airline to private equity firm Bain Capital.

The average return to those creditors will be between 9 per cent and 13 per cent, and even less if the proposed agreement is voted down, administrator Deloitte said in a report yesterday.

Shareholders including marquee names such as Singapore Airlines (SIA) and Etihad Airways are getting nothing. The carrier was almost entirely owned by four foreign aviation groups - SIA, Etihad and China's HNA Group and Nanshan Group - that each held 20 per cent stakes.

Priority creditors and employees will be repaid in full, according to the report. Virgin Australia failed in April under A$6.84 billion of debt as coronavirus-related travel restrictions took their toll.

With creditors due to vote on Bain's takeover proposal next week, the report reveals for the first time the expected hit to lenders.

Some 6,500 unsecured Virgin bond holders were owed A$1.9 billion, the report showed. Two of them, Broad Peak Investment Advisers and Tor Investment Management, last week scrapped their own rescue plan for the airline.

The airline is costing Bain A$3.5 billion, a sum that includes payments to Virgin Australia staff, customer travel credits and the assumption of some of the carrier's debt, Deloitte said yesterday, disclosing the value of the June deal.

Bain's takeover proposal "provides for the best return to creditors in what are extraordinary circumstances, and that were impossible to foresee", Deloitte administrator Vaughan Strawbridge said.

Bain plans to cut a third of Virgin Australia's 9,000 employees and scale back the airline's fleet as part of its revival plan. Deloitte says the sale agreed with Bain in June will go ahead no matter how creditors vote on Sept 4.

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