Virgin Australia creditors lose almost everything under Bain

Unsecured creditors of Virgin Australia Holdings Ltd. will lose almost all their money under a A$3.5 billion ($2.5 billion) deal to sell the collapsed airline to private equity firm Bain Capital.

The average return to those creditors will be between 9% and 13%, and even less if the proposed agreement is voted down, administrator Deloitte said in a report Tuesday. Shareholders including marquee names such as Singapore Airlines Ltd. and Etihad Airways PJSC are getting nothing.

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. Their losses reflect Virgin’s financial frailty when it went under, as well as the cost of resurrecting an airline during an aviation crisis that shows little sign of relenting.

Some 6,500 unsecured Virgin bondholders 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 Tuesday, 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 in a statement.

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. Last week, the U.S. buyout firm revealed it had agreed to pay A$750 million as a break fee should it fail to complete the takeover.

Deloitte says the sale agreed with Bain in June will go ahead no matter how creditors vote on Sept. 4.

If the deal is rejected, Deloitte plans to use its authority as an administrator to push through the agreement as an asset sale. The return to unsecured creditors in that scenario would be between 4% and 7%, Deloitte said Tuesday.