Maximise your Avios, air miles and hotel points

Court filings reveal the full messy details of Virgin Atlantic’s rescue plan

Links on Head for Points may pay us an affiliate commission. A list of partners is here.

Virgin Atlantic was in court on both sides of the Atlantic yesterday as it attempted to secure the necessary legal approvals for its $1.2 billion recapitalisation.

In London, Virgin Atlantic was seeking court approval to convene four meetings of its creditors on 25th August in order to vote on the proposed restructuring.  In the United States, Virgin Atlantic was in court seeking Chapter 15 bankruptcy protection.  This appears to be a technical move to limit the ability of US lenders to interfere in the restructuring and allow it to be concluded under the UK legal system.

According to Bloomberg, the airline told the court that it will collapse in September if the restructuring does not proceed.  Once the airline drops below £75 million of cash – which it will next month if the restructuring is not approved – its largest loan automatically defaults.  This loan is secured on Virgin Atlantic’s Heathrow slots, which would be sold to repay the loan and so force the airline into bankruptcy.

Of the four groups of creditors, three have already agreed to support the restructuring.  The meeting should therefore hopefully be a pure technicality.  Once approval is received, a further court hearing has been scheduled for 2nd September in order to impose the refinancing on all creditors.

Full details of Virgin Atlantic refinancing revealed

How is the Virgin Atlantic refinancing structured?

According to Bloomberg’s report of the court proceedings, this is how it will work.

New money, as we already knew, is being contributed by Virgin Group (c £200 million) and US hedge fund Davidson Kempner Capital Management (c £170 million).  The Davidson Kempner investment will be secured against whatever Virgin Atlantic assets are not already pledged to other lenders.

£450 million of creditor deferrals and £400 million of payment delays and waivers have been provided by the two shareholders, Virgin Group and Delta Air Lines

An existing $280 million revolving credit facility (ie overdraft) which is secured against aircraft and engines will be turned into a standard loan with a higher interest rate

One aircraft engine will be removed from the overdraft facility.  This will allow the airline to use it as security for a further $30 million loan.  (Yes, aircraft engines are so expensive – around $50 million in fact – that you only need one as security for a $30m loan!)

The aircraft leasing companies which own 24 Virgin Atlantic aircraft will be given a choice of accepting a cut in leasing rates or the immediate termination of their lease.  Virgin Atlantic is presumably confident that lessors will accept the cut in fees, as it won’t have much of a fleet left if 24 aircraft are returned.

Some creditors will receive preference shares in return for writing off money owed to them

Trade creditors will be paid 80% of what they are due.  Only 10% of the remainder would be paid immediately with the remainder paid in quarterly sums through to September 2022.  This does not apply to ‘business critical’ suppliers such as airports, which will be paid in full.

Full details of Virgin Atlantic refinancing revealed

Conclusion

As you can see, the full restructuring proposal is substantially messier than the summary provided by Virgin Atlantic last month.

In particular, forcing trade creditors into a two year wait to receive the money they are due – or, more accurately, receive just 80% of the money they are due – will be a blow to many small companies who work with the airline.

The aircraft lessors are also getting a tough deal, although arguably they will be in a far worse position if the airline folds and they are forced to find new homes for their planes.

All said, however, it appears that the airline has enough creditors on side to ensure that the final vote will be a formality.

You can find out more on Bloomberg here.

Comments (103)

  • W says:

    Ah, here it is. Sorry!

  • James A. says:

    Seems like Virgin Atlantic might survive this for now, as they used all the tricks in the book to get this deal. However, if things don’t recover especially that we are heading into the winter soon, we are just delaying the inevitable.

    • insider says:

      In a strange way, Coronavirus helps them survive a bit longer, albeit temporary me thinks. Lessors have nowhere to put their aircraft, so it’s best to let Virgin keep them on a peppercorn rent rather than receive them back and have to pay for storage. If they go under, then they just get them back a bit later, no real loss.

      The slots at LHR also will have much lower value now, so it’s in the interests of the creditors to try and hold on to them for a bit longer until things recover, otherwise they’ll take a bit haircut on their money. Same with trade creditors – 80% of something or 100% of nothing?

  • Paul W says:

    Is there a means of transferring to Hilton points (from Virgin) without having to call Virgin..

    “Minimum Level: 10,000 miles and then in increments of 10,000. Just call the Flying Club Helpline with your Honors account number”

    • Ordinarybloke says:

      Whatsapp seems to work

    • Yorkieflyer says:

      Will Hilton be taking a haircut?

    • Trevor Gardiner says:

      I did it via text. Quick and easy.

    • Trevor says:

      Paul, this is how I did the last lot. Text to: 07481339184

      “I would like to transfer XXXXX Flying Miles to my Hilton Honors account please.
      The details are: Flying Club 10********7. Bill Bloggs, 1 Station St, Sheffield, SH1 3TR
      DoB 10-02-1961
      Hilton account 883*******3
      Thank you Bill”

      Hope this helps, Trev

      • Rhys says:

        FYI, always make sure to double check phone numbers posted in the comments with a company’s official website to avoid phishing 🙂

      • Paul74 says:

        Yep, from sending the first text to having the points in my HH account, less than ten days.
        It took a couple of days to get a reply to the initial text, but it worked fine once the reply came.

      • Lady London says:

        Precisely that worked for me. No reply other than their confirmation that they:’d done it. I texted the (differemt) SMS number off the website instead

  • David says:

    This lets them survive for another day, but it’s not clear how strong a footing this puts them on going forward. The cash burn rate will continue to be significant and their core TATL routes are basically a skeleton service until the borders reopen in both directions.

  • Simon says:

    Thanks for this Rob. I’m watching this closely as have a stash of virgin miles. Already redeemed some for wines as a hedge.

    My guess, as others have said already, is that although this refinance gets them through the situation today, any second wave will be terminal, and not just for Virgin Atlantic.

    I think the wine collection may be increased again shortly. Real shame as of over half a million points I managed a trip to NY in the new Airbus 350 upper class and delta one back, and was looking to use the rest for some nice flights to São Paulo before that got pulled.

    Absolutely first world problems, but I think the world has changed with little chance we will return to previous customer demand or previous availability for a few years.

  • Mike says:

    hey I hope this does not effect my collection of Virgin miles – saved for my retirement holidays

    • Alex W says:

      Saving miles and points for retirement is not a good strategy. The devaluation far outstrips inflation. Earn and burn is the way ahead (he says with 1.5m points doing nothing…).

      • Mikeact says:

        Totally disagree. I would find it hard to believe eg , that Avios would go belly up…devaluation, maybe. But for retirement purposes, no problem for me…. I’m not prepared to drop everything for a quick long haul, just in case of a devaluation around the corner. My seven figure stash will easily cover any future changes. Maybe the RFS will be a possibility for changes.

  • thehornets says:

    Does anyone have a view on whether this affects those of us awaiting refunds?