Virgin Australia’s unsecured creditors to get 9-13% return on their money under reorg plan

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Use this oneFailed airline Virgin Australia’s unsecured creditors will receive an average return of 9-13 percent on their money under the court approved plan by US private equity group Bain Capital, according to a report filed Tuesday (25 August) by administrator Deloitte which is handling the company’s reorganisation. The unsecured creditors include 6,500 bondholders who are owed A$2 billion (US$1.43 billion) by the country’s formerly second-biggest airline and will receive a return of 8.4-12.8 percent, less than the 14.4 percent return for critical suppliers. Priority creditors and employees will receive 100 percent of funds owed, the report said.

The Bain deal will be voted on at a meeting of creditors on 5 September. Creditors were owed around A$7 billion when the airline failed in April and entered voluntary administration. Unsecured bondholders Broad Peak and Tor Investment Management last Friday withdrew plans to propose a rival debt-to-equity recapitalisation deal they had said would provide a higher return, leaving the Bain deal as the only real option apart from liquidation.

Deloitte said in a statement that Bain’s total financial commitment was around A$3.5 billion including all employee entitlements, all customer travel credits, assumption of a significant portion of secured debts and aircraft lease liabilities and a return to unsecured creditors. Under Bain’s business plan, Virgin plans to cut a third of its workforce as part of an overhaul to focus on being a domestic and short-haul international Boeing 737 operator competing against Qantas Airways. Virgin’s fleet consists of 144 planes, 44 of which are owned and 100 leased or financed, but some of the leased planes will be returned to lessors, Deloitte said.

Download Deloitte’s report to creditors here.
Download Deloitte’s stock exchange release here.

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