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

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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)

  • TripRep says:

    I cancelled my VS flights for November in mid May, still no sign of a refund for the cash element. Should I now seek recourse from MasterCard?

    • insider says:

      you probably should have done that in June!

    • TripRep says:

      Was on hold for over 2 hours to VS UC 0800 number.

      Refund was authorised today, should be with me in 2 weeks. So likely > 120 days since cancelling

  • Mark says:

    How would this affect Virgin Holidays and anyone holding a booking and/or a deposit for a holiday?

  • GM says:

    Thanks!
    Awaiting refunds…like everyone I guess.
    Most recent cancellation was for a month from now, and they were offering 197K miles immediately instead of cash and rebooking bonuses. I stuck with refund though – already have 180K ish that I’m not sure I’ll get to use. Really hope they make it through.

  • Harry T says:

    I still worry that they are toast due to their business model. Flights to and from the US are unlikely to resume before the election in November, given the political strategies employed by the incumbent. BA will be fine due to their extensive short haul network, as they can merrily sustain some form of income by operating intra European flights.

    • TGLoyalty says:

      I don’t think anyone wants to visit or send staff to many parts of the USA right now.

      Perhaps a wake up call for Virgin to diversify its network and go back to ‘some’ of its old routes and start up some new ones. European shorthaul is a no but some of the mid haul destinations might be attractive.

      • Harry T says:

        I agree. Hopefully this has shown them their business model is precarious and unsustainable. Would be good to see some more destinations.

  • Luckyjim says:

    It feels like the closing stages of a game of Monopoly. You’ve mortgaged everything and are limping around the board, trying to dodge your rivals’ hotels and get past ‘Go’ one more time.

    • Mr(s) Entitled says:

      Best case scenario, you get past go, collect a small cash injection, and then have to somehow navigate another lap.

    • Yawn says:

      +1

    • James says:

      LOL yep

    • ChrisBCN says:

      This is a perfect description!

      • Lady London says:

        I have never played monopoly but I get this immediately.

        I am impressed that the restructuring is still built so non-crucial creditors debts are not just written off.

        • AJA says:

          You’ve never played Monopoly??? It was my favourite board game as a child – I always wanted to be the racing car piece. I loved buying properties and putting up hotels to fleece my opponents – the perfect game for budding travel enthusiasts.

          If Virgin had a game they’d have the salt and pepper shakers as pieces and they’d have airports instead of railway stations. You could have chance cards like volcano ash grounds all planes – go to jail. or in this scenario – pandemic closes your routes and grounds your planes. Or on a more positive note they’d get out of jail card as all creditors agree to the restructure. I hope that last one comes true – I think it would be a shame to see Virgin go to the wall much as I am no fan of SRB.

          • BT01 says:

            Oh my goodness AJA I was exactly the same when I came to playing Monopoly, seldom ever lost a game. I now work in the property industry.

          • meta says:

            There are also versions with airports instead of railways!

    • Harry T says:

      @luckyjim
      Such an accurate and funny comment.

  • Roberto says:

    I cant see flights before the US election. And then if Trump loses and does the old one-two bringing in further (covid related) constitutional measures to cling to power there wont be any until 2021.

    Trump needs to blame someone, the Chinese are at the top of the list but European flights will get caught in the crossfire.

    Cant see Virgin continuing as they are with so much of their model being US focused. They have to evolve into something else hopefully keeping thier “cool” brand intact. Hurting their loyal customer base with 100+ day refunding has been another nail in their coffin IMO.

    I have flights with them to Barbados in January so am hoping for the best ( but expecting the worst ). I dont think there is enough market for them to get through this.

    • Harry T says:

      Agree with all of the above. The irony is that Trump closed borders to travel from China early but the US was probably infected by travellers from Europe. He will now use that narrative to justify continued borderline xenophobia to appeal to his base.

      • Brian says:

        US citizens coming back from China were allowed straight back in without any checks or enforced quarantine though so it wasn’t actually the claimed “ban”. It was the same with the Schengen and then U.K. “ban”. They maybe thought that US citizens couldn’t get infected and bring the disease back with them?

      • Prins Polo says:

        I think it’s pretty clear by now that there have been multiple sources around the same time in the U.S. and they came from both Asia and Europe.

      • Lady London says:

        When do people think the US borders will reopen if Trump wins the election?

        • RussellH says:

          Let us not even consider Trump winning the election. Seriously.

        • Will says:

          Regardless of the US opening it’s borders, we’d be bonkers to allow people originating in US to enter while they are so infected with covid.

          A lot will change by the election not just in the US but globally. The idea that we can travel to any destination is still pretty fragile in my opinion.

        • Brian says:

          When there’s a widely available vaccine

  • Jessiefan says:

    It’s a shame the UK Government hasn’t done more for the airlines after squandering untold billions on other things like half price Big Macs. Rishi should offer £500 off a long haul flight to get the airlines moving again.

    • Mr(s) Entitled says:

      Moving to where?

      • Brian says:

        Nowhere. Most long haul destinations won’t allow people from the U.K. in (with a very limited number of exemptions).

    • Luckyjim says:

      Yes. ‘After Eat Out to Help Out’ it’s ‘Take a Jet to Ease the Debt’. The government will pay your taxes and fees on all reward flight bookings!

      • Jessiefan says:

        Like it, or ‘Jet away to Save the Day’ the least they could do is drop APD for a year.

        • Alex W says:

          You reckon BA or Virgin would actually pass that APD saving onto the customer? Seems unlikely!

          • insider says:

            it’s the same with the reduction in VAT at restaurants – how many will actually pass it on? In a way, it’s just a disguised form of bailout

          • Luckyjim says:

            Wetherspoons have passed on the VAT reduction in full. Good old Tim Wetherspoon. Why hasn’t he been knighted yet?

          • Spaghetti Town says:

            Be a PR scandal if they didn’t. Ryanair probably would.

          • james says:

            Tim’s a prat, selling out of date beer and basic grub, no wonder it’s cheap.

          • ken says:

            James,

            I’m no fan of Wetherspoons, but its an urban myth that they sell out of date or even short dated beer.
            Such is their size, how on earth would they manage to buy the volume of out of date beer required ?
            Their cask ale is kept better than 95% of the pubs in the UK.

          • Spaghetti Town says:

            Wetherspoons is the best value for money food and drink in the country. It really is. Takes amex, too.

          • Lady London says:

            and defo some of the best value at Heathrow airside

    • Chris Heyes says:

      [email protected] OOooo Virgin wants Government Money but doesn’t deserve it and doesn’t qualify for Government Grants because that’s how it set its self up.
      BA Doesn’t Want more Government Grants (at the moment) because it has its own agenda first to cull staff and force wages down and change contracts (plus allegedly force Virgin out of Business)
      After which a Grant would be applied for ?

    • Lady London says:

      Trump was looking at this for America but the consensus was it would only help rich people.

  • solartravels says:

    Sad news for competition perspective in future. Virgin Holidays STILL did not pay up for my refund due for cancelled holiday now over the original 120 (!) days that they claimed.
    If. They survive, they will still not get my business after this.
    Trying not to act like a man scorned, but they have been really horrid to deal with. S75 pending too.

    • Lady London says:

      The only sensible thing to do with any money Virgin owes you is Section 75 now.
      Get the request filed now if you paid by UK credit card.

      • solartravels says:

        Absolutely, in fact I’d started it well in advance.
        Used Virgin Atlantic Premium Credit Card for the transaction. Virgin Money have not been great either with the S75.
        Either the refund or the S75 will come, just frustrating.