Virgin Australia to be sold to Bain Capital

[antycbr]

The bond holders have withdrawn from the lodgement of an alternative DOCA on September 4 allowing Bain to love move to complete the sale, however they have threatened court action if not satisfied with the outcome.

The Australian

 

[RAM]

The bond holders have withdrawn from the lodgement of an alternative DOCA on September 4 allowing Bain to love move to complete the sale, however they have threatened court action if not satisfied with the outcome.

The Australian

Frustrating that after all the uncertainty the two $2 hedge funds have caused - they'll probably still walk away with profits in the millions .

 

[antycbr]

Looks like Bain's offer will have an range of of 9 to 13c in the dollar for unsecured bondholders, with the only options being less than that - with a disorderly liquidation being the worst outcome.

Stiffing the bondholders was always going to happen.

 

[muppet]

I’m not sure I buy the “Bain will pay $3.5b” claim.
When you sift through the documents, I can sort of see about $600-$700m worth of figures that represents actual Bain cash in the Creditors Trust but it’s complicated. I suspect most of the $3.5b is just honouring staff entitlements, future flight credits and honouring the leases for the planes it keeps.
I don’t think much of Bain’s cash will end up in creditor pockets.

 

[antycbr]

I’m not sure I buy the “Bain will pay $3.5b” claim.
When you sift through the documents, I can sort of see about $600-$700m worth of figures that represents actual Bain cash in the Creditors Trust but it’s complicated. I suspect most of the $3.5b is just honouring staff entitlements, future flight credits and honouring the leases for the planes it keeps.
I don’t think much of Bain’s cash will end up in creditor pockets.

Its a bit like how VA owes $6+ billion - that's only if it ceases trading and all liabilites come due at the same time. Staff leave for example will be taken over a number of years over the normal course of trading (unless you make the staff redundant when it will all fall due).

 

[BAM1748]

The old management back in the news....

Virgin Australia may have traded while insolvent, administrator Deloitte says

Virgin Australia may have been trading while insolvent in the early days of the coronavirus pandemic's impact on airline travel, according to a report by Virgin's administrator Deloitte.

www.abc.net.au

 

[jakeseven7]

I’m sure this surprises very few people on here, a very long article from a US PE expert about what may happen once the PE ringmasters finally sink their teeth into VA2


Virgin Australia buyer Bain to saddle airline in new debts, US private equity expert warns

Bain was part of a consortium that bought Toys R Us in 2005 — the company folded in 2018.

Private equity expert Eileen Appelbaum told a US Congressional inquiry that Toys R Us collapsed, in large part, because it was loaded up with debt by its new owners.

Professor Applebaum warns that a similar fate may await a revived Virgin Australia under Bain's ownership.

Starting with Virgin's aeroplanes, of which it owns half. "You can imagine that Bain would sell the aeroplanes to a leasing company and then Virgin Australia will have to rent the aeroplanes back and Bain will walk off with whatever they sold it for," Professor Appelbaum postulated.

Another common money-making strategy of private equity is what is known as the "Management Services Agreement", which Eileen Appelbaum said will be signed the day Bain takes control of Virgin. She believes the airline will be forced to pay paying hefty fees for advice and services it may, or may not, need.

"They're very aggressive in their use of debt, in their use of financial engineering," she said of Bain. "They put the companies that they buy at high risk from that point of view.

"But, on the other hand, nobody wants to give Virgin Australia any money, so it really has no choice”

Bain is buying Virgin, but the airline may end up paying for its own buyout, expert warns

Virgin Australia looks set to be saved from liquidation by US investment firm Bain Capital. But a leading private equity expert warns Bain's track record in its home country should ring alarm bells.

mobile.abc.net.au

 

[antycbr]

"But, on the other hand, nobody wants to give Virgin Australia any money, so it really has no choice”

Exactly this. I don't think that the traditional sale of all the assets will work in this case as who would want some preloved 737s, other than another arm of Bain perhaps?

 

[moa999]

This is very different to a PE deal where a company is purchased with $s flowing to former owners and then loaded up with far more debt than it previously had.

In this case Bain is putting $s into the company with nothing going to former owners and the debt load is being reduced via the administration process.

He's correct that it will still carry a fair amount of debt.

 

[Melburnian1]

I’m not sure I buy the “Bain will pay $3.5b” claim.
When you sift through the documents, I can sort of see about $600-$700m worth of figures that represents actual Bain cash in the Creditors Trust but it’s complicated. I suspect most of the $3.5b is just honouring staff entitlements, future flight credits and honouring the leases for the planes it keeps.
I don’t think much of Bain’s cash will end up in creditor pockets.

John Durie from 'The Australian' agrees with you. To borrow the Ansett word, 'Absolutely!':

(online 27 August 2020):

There seems to be a mistake with claim VA had '$1.2bn in subsidised flights': more like '$1.2m' I suspect.

----------------------------------
'Bain Capital will only hand over $700m in cash for control of Virgin Australia, well short of the $3.5bn price tag floated on the back of the second creditors’ report.

The actual cash being handed over is just a little short of the $726.3m equity value of the company when it called in Deloitte as the administrator in April.

Debt at the time was $6.8bn.

Separately, chief customer officer Danielle Keighery will resign from the airline to take up the role as chief customer officer for BoQ, based in Sydney

Bain won't refinance the company until after receiving formal clearance at the creditors’ meeting on Friday week, but while taking on responsibility for the liabilities, actual cash changing hands is just $447m to cover unsecured creditors, with another $125m available for a profit share with the unsecured creditors.

Unsecured bondholders will get between 9c and 13c in the dollar, which compares to the 10c price of the bonds when the company called in Deloitte on April 21.

Public company takeovers typically see shareholders receive a premium of about 25 per cent on the last share price, but in this case Bain is picking up the pieces at closing prices.

It has already injected $125m to keep the place afloat.

The company received $49.3m in JobKeeper payments from the federal government, plus about $1.2bn in subsidised flights during the pandemic according to the note to creditors.

Deloitte’s fees will total $26.8m, Clayton Utz will get $8.7m and Morgan Stanley and Houlihan Lokey will collect $16m in fees for advisory work.

Bain is taking on the risk of the airline actually making it through the pandemic, but will enjoy the upside if it does...'

 

[HS-TQE]

This is very different to a PE deal where a company is purchased with $s flowing to former owners and then loaded up with far more debt than it previously had.

In this case Bain is putting $s into the company with nothing going to former owners and the debt load is being reduced via the administration process.

He's correct that it will still carry a fair amount of debt.

Overall it does seem that the PE firms such as Bain seems to be the "lesser of the many evils" when compared to the former owners of VAH, of which all have very dismal records at investing in and operating airlines outside their own backyards.

 

[travelislife]

This is very different to a PE deal where a company is purchased with $s flowing to former owners and then loaded up with far more debt than it previously had.

In this case Bain is putting $s into the company with nothing going to former owners and the debt load is being reduced via the administration process.

He's correct that it will still carry a fair amount of debt.

They aren’t really talking about the ‘now’ though. It’s what they will do once they have control. Have no doubt that Bain already has its exit strategy clearly planned. They will try and list it again in 3-5 years time or flog it off to another airline.

 

[AIRwin]

They will try and list it again in 3-5 years time or flog it off to another airline.

Star Alliance member?

 

[HS-TQE]

Star Alliance member?

Don't think any of the carriers (except maybe Qatar) are in the position financially to "take over" another airline in 3 years time.

EY (unaligned) and SQ's dismal record has already been well documented, despite their parent companies (EAG and Temasek) previously mentioned as having a 'passing' interest at tyre-kicker level.

 

[jakeseven7]

Overall it does seem that the PE firms such as Bain seems to be the "lesser of the many evils" when compared to the former owners of VAH, of which all have very dismal records at investing in and operating airlines outside their own backyards.

And were all tapped on the shoulder, declined and dropped poor VA1 like a hot stone anyway....

 

[jakeseven7]

They aren’t really talking about the ‘now’ though. It’s what they will do once they have control. Have no doubt that Bain already has its exit strategy clearly planned. They will try and list it again in 3-5 years time or flog it off to another airline.

Exactly and with their track record they really don't care what happens to it after they sell it, they have a plan to extract the biggest margin out of VA2 as possible for themselves and during the time that they own it, extract maximum management services fees from the VA2 corporate shell as well.

Win win for Bain....

 

[HappyFlyerFamily]

The countdown begins....creditor meeting next Friday 10am

 

[Melburnian1]

From 'The Australian' 31 August 2020 (part extract - subscribe or buy the paper for more):

'Unions hoping to use their numbers to keep Jayne Hrdlicka off the new Virgin Australia board have been told in no uncertain terms that they will not get to choose the directors.

In a letter to union leaders, prospective new owners Bain Capital tackled the issue head on, stating that the firm would “decide on and form a board of high quality, experienced directors”.

“As with all of our investments, we will recruit the best combination of people to serve on Virgin Australia’s board of directors based on the needs of the business,” said the letter from Bain Capital’s Australian CEO Mike Murphy. It followed strong indications by the Transport Workers Union that their support for the $3.5bn sale to Bain Capital could be withdrawn if Ms Hrdlicka was given a board position.

The former Jetstar CEO had a troubled relationship with unions while employed by the Qantas Group, due to a 2015 wage freeze...'

 

[SeaWolf]

Bain offers unions key advisory role in Virgin reboot

Virgin Australia's presumptive owner Bain Capital has extended an olive branch to the airline's unions in the form of a workers' advisory council that will consult on how the carrier is relaunched from administration.

www.smh.com.au

The establishment of the body made up of three union representatives, Bain and Virgin chief executive Paul Scurrah follows a union revolt over the US private equity firm's choice of directors to oversee Virgin. In a letter sent to unions on Sunday, Bain's local boss Mike Murphy said he agreed to the unions' request to establish a union advisory council, which will meet every fortnight until the end of the year.

 

[jakeseven7]

From 'The Australian' 31 August 2020 (part extract - subscribe or buy the paper for more):

'Unions hoping to use their numbers to keep Jayne Hrdlicka off the new Virgin Australia board have been told in no uncertain terms that they will not get to choose the directors.

In a letter to union leaders, prospective new owners Bain Capital tackled the issue head on, stating that the firm would “decide on and form a board of high quality, experienced directors”.

“As with all of our investments, we will recruit the best combination of people to serve on Virgin Australia’s board of directors based on the needs of the business,” said the letter from Bain Capital’s Australian CEO Mike Murphy. It followed strong indications by the Transport Workers Union that their support for the $3.5bn sale to Bain Capital could be withdrawn if Ms Hrdlicka was given a board position.

The former Jetstar CEO had a troubled relationship with unions while employed by the Qantas Group, due to a 2015 wage freeze...'

They better be careful what they wish for, she could be one of the 'management advisors' Bain will hire out to VA2 in return for millions a month (aka pseudo CEO) with a lot more power than a director!