Virgin Australia weighing debt financing plan ahead of IPO, sources say

Virgin Australia Airlines Pty Ltd. is considering taking on new debt in order to hand cash to owner Bain Capital just months ahead of the airline’s prospective initial public offering, according to people familiar with the matter.

The nation’s second-largest carrier has asked investment banks to outline a potential so-called dividend recapitalization during interviews for prospective advisers on the listing, said the people, who asked not to be identified as the discussions were still confidential. The move would see Virgin issue debt ahead of the possible IPO and the proceeds would be used to pay dividends to Bain, they said.

The company interviewed about eight investment banks in recent weeks for the first-time share sale, the people said. They plan to select three to four underwriters as soon as in the coming weeks, to manage a possible listing this year, the people added.

The airline plans to canvas investor interest based on projections of about A$400 million ($277 million) in net profit after tax for the 2023 financial year, the people said. It may seek to be valued at an earnings multiple close to that of Qantas Airways Ltd., Australia’s largest airline. 

Discussions are ongoing and there is no guarantee that Virgin and Bain push ahead with either the recapitalization or the public offering, the people said. 

A spokesman for Bain Capital said that, as it has previously flagged, Bain Capital is currently considering its options regarding Virgin Australia’s capital structure, and no final decision has been made. The spokesman declined to comment on the company’s financial position or timing of a possible IPO. A spokeswoman for Virgin Australia deferred questions about any debt-financing plan to Bain and declined to comment. 

Virgin Australia is now focused on keeping hold of one-third of the domestic passenger market and short-haul flights to destinations such as New Zealand, Chief Executive Officer Jayne Hrdlicka said in September. The airline had crumbled under the weight of A$6.8 billion in debt during the pandemic, and was rescued in 2020 by Bain in an A$3.5 billion deal that wiped out much of the claims of unsecured creditors.