Virgin Atlantic faces crunch vote to save restructuring plan

Richard Branson’s Virgin Atlantic Airways Ltd. faces a crunch vote in less than three weeks to determine whether a hard-won 1.2 billion-pound ($1.6 billion) rescue goes ahead or if the airline is headed for collapse.

Meetings of four creditor groups will be held on Aug. 25 after the company began a legal process in the U.K. to stop any holdouts from blocking the package. Virgin told a London court Tuesday that it will fold next month if the financing plan fails. It filed an ancillary petition for Chapter 15 bankruptcy protection in the U.S. to freeze creditors there and ensure the U.K. process is recognized.

The airline’s proposals, which bring in new money from Branson and U.S. hedge fund Davidson Kempner Capital Management, will require a restructuring of existing debt. Virgin Atlantic says it has already secured backing from three of the four creditor groups: aircraft leasing firms, the providers of $280 million in revolving credit, and so-called related-party creditors including shareholder Delta Air Lines Inc.

That leaves a fourth group to persuade, the airline’s trade suppliers. Virgin Atlantic is one of the first companies to use the new U.K. court process, which allows a judge to force holdouts to go along with a financial restructuring if enough creditors approve.

Under the new procedure, the judge has latitude to decide that creditors would do better under the restructuring than from insolvency proceedings, even if not all groups vote to support the plan.

The procedure became law on June 26 after being introduced to aid the survival of otherwise viable companies hit hard by the coronavirus pandemic. Under a traditional scheme of arrangement, approval from creditors holding 75% of the value and 50% of the members in a specific class was required in order to force through a so-called cram down.

Virgin Atlantic told the London court that without the plan’s approval, available cash would fall below 75 million pounds, allowing bondholders to enforce the sale of vital operating slots at London Heathrow airport.

Trans-Atlantic Trade

The Crawley, England-based carrier has been hit particularly hard by the Covid-19 pandemic. The lucrative North Atlantic market on which it depends is still largely wiped out as the outbreak continues to rage in the U.S. Since Jan. 1, bookings are down 89% year-over-year, and second-half demand is at about 25% of 2019 levels, according to court papers.

Chief Executive Officer Shai Weiss unveiled the rescue plan on July 14 following an extended search for backers. Virgin was told that its credit ratings disqualified it from tapping a U.K. government funding program.

Virgin Atlantic’s trade creditors would be compelled to take a 20% haircut under the restructuring plan, with 10% of the remaining balance paid in cash and the rest of what’s owed in quarterly sums through September 2022. Suppliers of goods and services critical to the carrier, such as airports, are exempt from the proposals, as are creditors with claims of less than 50,000 pounds.

The company said trade creditors have not been invited to sign support agreements for the restructuring because of the large number involved and the relatively small size of each claim, though advisers have extensively engaged and consulted with them.

Virgin Atlantic said Tuesday that it remains confident in the rescue package.

“With support already secured from the majority of stakeholders, it’s expected that the restructuring plan and recapitalization will come into effect in September,” it said in an email.

The company added that in the Chapter 15 filing, “the process we have asked to be recognized is a solvent restructuring of an English company.”

Virgin is scheduled to return to the U.K. court on Sept. 2 for a final decision. The carrier said its flights continue as normal and that all bookings remain valid.

Proposals for Virgin’s other creditor groups:

• A fully drawn $280 million revolving credit facility secured against aircraft and engines will become a term loan with a longer maturity and a margin that’s 1% higher. One engine will be freed up to be used as security for a new $30 million facility
• Plane-leasing firms that own 24 Virgin jets will be offered three options: a 15% cut in fees until September next year at least, an 80% reduction for the full term, or the termination of leases and the return of aircraft in their current condition
• So-called connected creditors including 49% shareholder Delta will get preference shares in return for capitalization of money owed.