Virgin Australia to be sold to Bain Capital

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VA's Bondholders and the Temasek Pte Ltd owned firm (Broad Peak Investment Advisors Pte Ltd) has dropped "their challenge" to the Bain takeover.

 
They only withdrew from their action in the Takeovers Panel, an article I read is that they are still pursuing federal court action against Bain and Deloitte. This is just a change in legal tactics, they haven't given up completely.
 
'The Australian' 15 July on front page of business section has two stories.

Deloitte's administrator reveals that in the first week, he had to source loans to pay VA employees' salaries/wages, something that has since been rectified.

The bondholders still believe they can 'derail' the sale at the creditors' meeting.

I've said for a long time that there's every chance VA could still be liquidated. The poor business environment for airlines (including the Melbourne - Sydney route being all but closed) heightens this chance.

There is also a lengthy story about a retired Sydney couple who invested in those VA bonds and while 'not crying poor', they are concerned they will lose all their money.

Unfortunately though if one is offered bonds with an eight per cent coupon rate (i.e. interest) and 'normal' interest rates to bank depositors are say 0.5-1 per cent, there's usually a catch on the risk versus reward equation. That's not to say the rest of us don't make mistakes with investments in property or shares - we can - but with the bonds, the excess return was so high it to me raised alarm bells.

A particular stockbroker comes out of all this rather poorly, although the man interviewed by 'The Oz' today isn't an uninformed investor.
 
VA's Bondholders and the Temasek Pte Ltd owned firm (Broad Peak Investment Advisors Pte Ltd) has dropped "their challenge" to the Bain takeover.

Temasek owned = not as it seems.

It is not 100% owned, not 50% or even 10% owned according to filings it has less than SGD $1m in a small fund <$80m run by them. They are not advisors (misleading name?) but a very small private hedge fund that refused to state assets under mgmt in their filing. One employee does not make it seem credible in any way - other than his own PR.

I wonder who dropped the 'Temasek owned' red herring to the journalists? Two guesses.

The panel said in a 6 July media release that each of the two parties manage, represent or advise “certain funds that are existing substantial noteholders of VAH, which are large, unsecured creditors in the administration”.

Very well crafted statement - inclusion of advise means they can post an opinion in a blog about their 'view' & use it to justify their participation. Equally spending $50,000 recently allowed you to buy $5,000,000 face value of some of the bonds. As they're not Australian domiciled then 'substantial' also has a totally different meaning.

The plot thickens.
 
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On a unrelated note, VA's former sister airline VS just secured a rescue deal with Branson chipping in. DL expected to contribute to VS as well.

Safe to say that Branson will contribute no more than 10% to the VA 'rescue' deal should the Bondholders be held back and the Bain agreement gets the 'all-clear' by creditors.
 
So, the bondholders can put their alternative DOCA to the Creditor's meeting, at least according to the Federal Court, releasing its judgement on the BH's prior application:

Bondholders back in hunt for Virgin, after Federal Court judgment

Bondholders in Virgin Australia hoping to put up an alternative proposal for the airline have been reassured by a Federal Court judgment that they will be able to do that.

Judge John Middleton published his judgment on Wednesday in response to the bondholders’ case seeking access to confidential details of the prospective sale to Bain Capital.

Although their application was denied, the judge reaffirmed bondholders’ right to propose a new deed of company arrangement (DOCA) at the creditors’ meeting on August 22.

...

“Whatever the administrators (Deloitte) may have conveyed to the applicants (bondholders Broad Peak and Tor), there is no doubt that the applicants have the ability at the next meeting of creditors to propose a DOCA,” said the judgment.

He went on to say that denying the bondholders access to confidential details of the deal now should not impede their endeavour, in light of the fact Deloitte was still required to provide sufficient information ahead of the creditors’ meeting.

Justice Middleton also sounded a warning to administrators that the sale process could be delayed or even terminated if they did not meet these obligations.
 
So, the bondholders can put their alternative DOCA to the Creditor's meeting, at least according to the Federal Court, releasing its judgement on the BH's prior application:

Bondholders back in hunt for Virgin, after Federal Court judgment

Bondholders in Virgin Australia hoping to put up an alternative proposal for the airline have been reassured by a Federal Court judgment that they will be able to do that.

Judge John Middleton published his judgment on Wednesday in response to the bondholders’ case seeking access to confidential details of the prospective sale to Bain Capital.

Although their application was denied, the judge reaffirmed bondholders’ right to propose a new deed of company arrangement (DOCA) at the creditors’ meeting on August 22.

...

“Whatever the administrators (Deloitte) may have conveyed to the applicants (bondholders Broad Peak and Tor), there is no doubt that the applicants have the ability at the next meeting of creditors to propose a DOCA,” said the judgment.

He went on to say that denying the bondholders access to confidential details of the deal now should not impede their endeavour, in light of the fact Deloitte was still required to provide sufficient information ahead of the creditors’ meeting.

Justice Middleton also sounded a warning to administrators that the sale process could be delayed or even terminated if they did not meet these obligations.
Thanks for sharing article.

I still fail to understand how & why these bondholders deserve to see Bain's final offer, even confidential details & match it to a large degree with basically a surprise offer at the creditors meeting on Aug 22. surprise that Bain don't know of Bondholders details offer.

What's stopping any other party coming in & doing same thing? Or is it only allowable to 'bondholders' this privliige?

Do Bain get to see this counteroffer before Aug 22nd??

I'm have no legal knowledge etc, but seems I wanna see yours, but I'm not showing you mine scenario!!
 
Thanks for sharing article.

I still fail to understand how & why these bondholders deserve to see Bain's final offer, even confidential details & match it to a large degree with basically a surprise offer at the creditors meeting on Aug 22. surprise that Bain don't know of Bondholders details offer.

What's stopping any other party coming in & doing same thing? Or is it only allowable to 'bondholders' this privliige?

Do Bain get to see this counteroffer before Aug 22nd??

I'm have no legal knowledge etc, but seems I wanna see yours, but I'm not showing you mine scenario!!
They get no right to see the detailed business case/proposal - just the top level the same as any registered creditor (you & I) are entitled to receive prior to the meeting...

Perhaps something like this complete with pretty picture of destinations with VA planes taking off etc, and for the second part pictures of extended lines of parked aircraft (including Q ones) to reinforce the loss of security with grounded planes. After sniffing the teabag to get inspiration I came up with this typical spin diatribe.

"Under our proposal, ceteris paribus, Virgin will rise to be a full service domestic carrier servicing over 80% of the Australian population with the same wonderful staff that have worked so hard over the last difficult months, secured bondholders will receive XY cents in the dollar, secured leaseholders will receive control their assets back, unsecured bondholders will receive z cents in the dollar, other unsecured creditors will receive back between ab cents in the dollar and cd cents in the dollar reflecting their respective claims, shareholders will receive a zero return, all employee entitlements will be honoured in full, we will endeavour to operate a full domestic service to all destinations that provide an acceptable return on funds employed, (THEY MAY EVEN LIST SOME) at this stage those look like the following pairs as set out in appendix A, all flight credits and existing tickets will be honoured, the Velocity Frequent Flyer scheme will be fully honoured and expanded to make it an even more compelling program for our customers to partcipate in. Future announcements will be made as new partners and redemption options are updated.

Our fleet will be simplified to solely B737 aircraft and all other planes either returned to their lessor, sold or scrapped. The B777 planes that VA owns will remain parked for at least the next few months before a final decision is made. It is unfortunate that a large number of wonderfal VA staff will be leaving the company & our intention is to seek voluntary retirements & redundancies where possible however the reduction in both company size and complete elimination of many aircraft types will result in some areas being no longer required. We will offer all departing staff a lifelong discount for future travel with Virgin(1).

As no other bidder has followed the detailed process set out by the Administator over the last 5 months then the alternative to accepting our offer, in our opinion, would result in Virgin being liquidated.

Due to the urgent requirement for funding in the period since Bain & Company was declared the successful bidder subject to confirmation at this creditors' meeting - we advanced $XYZ million on the proviso that should our bid not be approved then we are designated a preferential debtor and recieve FULL REPAYMENT of all funds advanced & reasonable associated additional expenses (as aproved by the Federal Court). Virgin's Air Operating Certificate will be revoked which would see likely zero returns to all unsecured creditors as well as losses up to 30 or 40 cents in the dollar for most secured creditors due to forced sale of assets which are predominantly grounded aircraft costing money every day they sit idle.

All employees would immediately be dismissed and likely have to rely on the Federal Govt to fund all their outstanding entitlements. As the value of points in the Velocity Scheme has been fully cashbacked within its own trust vehicle then those unsecured creditors would likely receive a high proportion of value back for their VFF points however legal challenges may eventuate which will both drain funds and delay the return potentially for several years.

Unfortunately it is likely that all travel credits & outstanding current issued ticket holders would receive close to a zero payout over the course of several years while the liquidation process unwinds.

As such Bain & Company believe our offer is compelling and should be supported.
(1) discount will depend on ticketing class & destination"

With suitable comments made by the Administrators - I'd guess a 20 page booklet depending on how many pictures are used to pad it out, plus possibly an estimate of the negative net asset position as at July 31st, 2020 just to drive home the point.

Or perhaps the black teabag fumes were too strong.
 
That same article in 'The Australian' at lunchtime on Wednesday 15 July also had this ominous warning for the administrators:

'...Barrister Ian Jackman also questioned the structure of the deal with Bain, given the administrators had suggested it could not be voted down by the creditors meeting.

“We are confused as to how the administrator, no doubt with advice, has come to the conclusion that it is a fait accompli and whatever happens at the second meeting can’t change the asset sale to Bain,” he said...'
 
So now the unsecured bondholders have eventually found a way to gatecrash the second creditors meeting, but Justice Middleton has not allowed the unsecured bondholders to peek at Bain's detailed sums/plans.

So it's taken a while but now the unsecured bondholders either have to trump the unknown Bain offer, not overpay to trump Bain, get enough votes by value and by numbers and then work out how to relaunch a grounded airline. And that's on the assumption that is what their intention is.

Or is this all an elaborate greenmailing attempt to just improve their bargaining power over Deloit or Bain? Or maybe even an attempt to simply derail the Bain transaction and/or a relaunch of VA2?

As RAM says - Bain may have their own pineapples to hand out to creditors like banks, aircraft leasors etc so we could see two surprise lowball DOCA's at the second creditors meeting?

It seems like legally there is nothing preventing a third or even fourth party arriving with their own DOCA now that the unsecured bondholders have cleared a legal path through the brush to get there, Remind me again how the administrators went? They advertised widely, got lots of tyre kickers, knocked out 2 of the 4 serious parties and then ran an auction with only 2 bidders and are now taking one bid to the vendors fighting other bidders in courts to keep them out, but the courts have decided that previously excluded late bidders may put forward their own DOCA bid? All clear now?

I hope Deloitte have better legal advice than what some are inferring, and, again, I hope their professional indemnity insurance is all paid up because this is starting to look like the beginnings of a lawyers picnic.
 
That same article in 'The Australian' at lunchtime on Wednesday 15 July also had this ominous warning for the administrators:

'...Barrister Ian Jackman also questioned the structure of the deal with Bain, given the administrators had suggested it could not be voted down by the creditors meeting.

“We are confused as to how the administrator, no doubt with advice, has come to the conclusion that it is a fait accompli and whatever happens at the second meeting can’t change the asset sale to Bain,” he said...'

I have read that if all else fails, Bain has agreed to to buy the assets of the company.
 
I have read that if all else fails, Bain has agreed to to buy the assets of the company.

Yep - that seems to the thrust of John Duries article today (paywalled in the Australian) so some important bits here:

On June 26, Deloitte administrator Vaughan Strawbridge signed an implementation agreement with Bain's Murphy that meant the deal would be done by either approval of the deed of company arrangement (DOCA) or by the sale of assets. In return, Murphy committed to injecting $125m to keep the company afloat — and that commitment was the swing factor in the $1.7bn deal.

The creditors’ meeting scheduled for before the end of August is in practical terms a charade because the deal is done — unless, of course, the bondholders want to put a cheque for $50bn on the table.

Murphy has the keys and is in the house already, watching Collingwood on the television, while the bondholders are running around outside trying to get a peek at the score. The running around screaming is, of course, also aimed at trying to convince Strawbridge and Murphy to give them more meat on the bone they will toss out the back door.

The only mistake Strawbridge has made is not telling us all about the deal now so everyone knows where they stand. He no doubt wants to look like he is playing by the rules of the game to avoid the risk of triggering a wildcard court to toss out his deal.

The bondholders tried to get the Federal Court to force Strawbridge to tell us all about the deal, but the court last week declined and said he could come clean when he deemed fit.


The court did give the bondholders the right to submit an alternate DOCA to the meeting, but unless they have agreement to have it voted on first and it is a winning bid, that is not such a great victory.


So now the unsecured bondholders have to get their "ambush bid or their DOCA" ahead of the Bain proposal of DOCA in the second creditors meeting, and it has to be bigger/better than the unspecified Bain bid, and it has to win the vote by value and by number of creditors (including employees), lots of homework and phone calls to creditors to do there.

If Deloitte try anything within or outside the rules of running a "charade" creditors meeting, and they try to close the meeting, and go down the pre-arranged but top secret "Plan B" process to execute a sale of VA assets to Bain. I wonder what the employee groups, secured creditors, aircraft lessors etc etc will think about that "charade" creditors meeting and the sale process? They have all prepared themselves to vote along lines of $$ votes and votes by number and suddenly they will discover that their vote and their own homework about acceptable returns is irrelevant, its all a tidy little deal done behind closed doors between Bain and Deloitte. Surely thats going to open up several new avenues for the unsecured bond holders or any other malcontents to pursue through the courts or the takeovers panel. Hello "unacceptable circumstances" arguments in front of the Takeovers Panel?

Obviously lots more to play out here in the corporate sphere as well as any legal avenues of appeal. Interesting to watch.
 
because this is starting to look like the beginnings of a lawyers picnic.

Was always likely. Remember these bondholders (well at least those who haven't sold already) invested $2bn just over 6 months ago, admittedly at a high interest rate.

They are obviously interested in minimising any loss, particularly when they can get forced into the deal by other parties with different interests and outcomes.

They are just in a poor position with limited information.
 
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I wish it was august 22 now. its starting to look like a bloody soap opera. And wish Bain would make a media conference to let every one know what they are doing.
 
I wish it was august 22 now. its starting to look like a bloody soap opera. And wish Bain would make a media conference to let every one know what they are doing.

I know what you mean.... And there is literally 5 more weeks for the bondholders to white ant through the media, create their own spin stories and disrupt the process as much as possible to get their story out there pre the meeting.

Add to that, I expect there will be further / extended travel restrictions imposed that will impact on VA's ability to earn money due to the spread of the virus widening in Sydney....
 
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Was always likely. Remember these bondholders (well at least those who haven't sold already) invested $2bn just over 6 months ago, admittedly at a high interest rate.

They are obviously interested in minimising any loss, particularly when they can get forced into the deal by other parties with different interests and outcomes.

They are just in a poor position with limited information.
Slight correction....

The approx $2bn face value of UNSECURED bonds (a word left out much more often than not for some reason) cover a range of different issues ranging back to 2015/16 (I recall). So the earlier buyers of the mainly USD issued unsecured bonds have received multiple years of high yield coupons - so their effective losses are much lower than the buyers for the latest unsecured bond issued.

Again, off the top of my teabag, the amount issued in Nov 2019 was AUD 385m at a coupon (interest) rate of 8%.

Before the AUD issue, if people had done the slightest due diligence, the price for the prior issues was not $1.00 per $1.00 face value. Does anyone get the feeling that some litigation funding group will be on the job post Aug 21st launching a class action against the groups who offered the Nov 2019 issue around? Did they provide comparison information about the current state of previous Virgin unsecured bond issues?

So many questions that the media has yet to raise.
 
I know what you mean.... And there is literally 5 more weeks for the bondholders to white ant through the media, create their own spin stories and disrupt the process as much as possible to get their story out there pre the meeting.

Add to that, I expect there will be further / extended travel restrictions imposed that will impact on VA's ability to earn money due to the spread of the virus widening in Sydney....
that's for sure. the best thing for the new owners to do is to make it clear what there doing and be honest about it . not hiding behind closed doors
 
Outside of keeping the relevant stakeholders informed (as appropriate), does Bain really need to keep the outside world updated? Not really IMO.

Other parties via the media can make as much noise as they like, it's those who are voting which Bain needs to keep updated as needed. Pretty sure it's not their first time at the rodeo.
 
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