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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)

  • John T says:

    Hard to see Virgin surviving in its current form with such a reliance on flying to the United States.

    Regardless of the US election result, I can’t see the US being considered safe to fly to this year. For as long as the EU bans Americans from entering I think the US will reciprocate. Virgin can try and reduce their cash burn and find new investment but their fixed costs will continue each and every day. It’s not like if they can just hold on a few days longer everything will go back to normal…

    • Anna says:

      I don’t think Americans (or any other nationality) are banned, are they? Isn’t it just the (pretty lax) quarantine requirement?

      • John T says:

        If British can’t enter the US there’s not enough demand to fill the planes just to bring the US into the UK is what I’m saying. Surely there’s traditionally more demand from UK traveller than US for Virgin Atlantic seats?

  • James says:

    Time to move miles elsewhere? I’ve got about 180k of them… Would hate to lose them

    • solartravels says:

      I moved mine a short while ago.
      Only to IHG mind you, rate was not great 1:1.
      But the receptions at IHG have been super lately. I’m on my empty train to London just now, to the Crowne Plaza Kensington. 3 nights for 75,000 IHG. Incredible for London really.

      • Sean says:

        Not really a bargain if Virgin miles were worth 1p each though.

        • Peter K says:

          But can you really say they are worth 1p each at the moment?

        • Lady London says:

          but a huge bargain if your Virgin miles could become worth zero!

          Rob’s faith is what’s sustaining my hope that people holding Virgin miles will get the chance to fly with them

  • ken says:

    So a drawn out & fairly complex debt restructure, and it’s probably a coin toss that they survive the next 18 months.

    Hats off to Branson for putting cash in (and Delta for deferring on whats owed). He can at least say he tried and avoid reputational damage should the worst happen.

    To think though, some on here just wanted the UK taxpayer to bung them £500m – no strings attached.
    The mind boggles.

    • Lady London says:

      Unfortunately, @Ken, some still do want that.

      We do have to look harder at BA/IAG for the future though, they will not put Britain first when deciding things

  • John says:

    But, Rob, if they’re lucky they’ll also get what their Aussie counterparts have been so generously given.

    https://mobile.twitter.com/AgentOrangeDDR/status/1290810965194428418

    • Mikeact says:

      I’d stick it on Ebay, ‘Offers in excess of one penny’, or ‘buy it now for one penny’… and just hope it goes. Could be used as part of a dartboard I suppose.

  • Vit says:

    https://www.bbc.co.uk/news/uk-scotland-53666665

    ABZ under local lockdown. Oh well, not that any of you are heading here anyway. 😉

  • PJJ says:

    Question on Virgin flights to JFK
    My returned flight was first changed from 21.00 to 20.01 with a different flight number
    My outward flight was first changed from 09.05 to 13.45 and then to 15.30 with the same flight number on both occasions, VS3
    I have been checking flight VS3 recently and it has been going every Tuesday, Thursday and Saturday, presumably a cargo flight
    My outward flight is Saturday 29th August
    Is a FTV my only option ?
    Any thoughts appreciated
    TIA

    • Lady London says:

      Google EC261 text it tells you precisely how many hours a flight can be moved back or forward according to flight distance.

      At first glance though cumulatively it looks like they would exceed the allowable delay for NY. I am wondering if they deliberately moved it in 2 chunks to make that less obvious. I think you can ask for full refund or reroutw of the whole ticket out and back due to that change and i would.

      • PJJ says:

        @LadyLondon, Thank you
        Looks like it is 4 hours over 3500km which JFK is 5554km, I believe

  • mutley says:

    So, If I redeem my flying club miles for an ANA flight in the New year, and Virgin disappears in the interim, what do Hfpers think on the chances the flight will be honoured?

    Also, What are the best best transfer options at present?

    • Harry T says:

      Question 1: no, it would not be honoured. VS is required to pay its partners for your redemption after you fly.

      Question 2: many of us favour transfers to Hilton points. You lose value if you anticipate being able to redeem VS miles at 1p per point. On the other hand, Hilton aren’t going anywhere and you can do well with their points if used tactically.

      • J says:

        Steady devaluation of Hilton points will continue/accelerate though, with their “dynamic” redemption rates a bit all over the place it’s easy for them to hide it too. Yes there’s good value to be had at some Hamptons and Maldives – elsewhere I find the opportunities very limited.

      • cinereus says:

        The only good way to use up VS miles now is STILL Virgin Wines. Hilton are very poor in comparison for my uses.

        • Rob says:

          Get yourself an ANA First Class flight to Tokyo ….

          We got 4 x Upper Class to Barbados over October half-term so can’t complain. This is back-up in case the UAE does not come off the quarantine list.

    • Luckyjim says:

      Flying Club is a separate legal entity to Virgin Atlantic. The only think that is certain is that if Virgin Atlantic ceased to exist you would no longer be able to redeem your Flying Club miles with Virgin Atlantic. Everything else is pure speculation.

  • Will says:

    Ref lease reduction.

    With relatively low oil price, an airline might be better off running less efficient fully depreciated aircraft rather than expensive new slightly more efficient ones in the current situation.