Virgin Atlantic has officially been reprieved this afternoon after creditors voted to approve a £1.2 billion refinancing package.
In truth, there was very little on the line. Of the different creditor groups which had to approve the deal, the only group which had not already consented was a relatively small group of trade creditors. These were collectively owed just £50 million.
Virgin Atlantic had proposed to reduce the amount it would pay these creditors by 20% and reschedule the remaining payments.
To be honest, given that the airline is only saving £10 million, it seems a little odd that it decided to push through the request. It will not exactly bring it any goodwill from the creditors involved.
Given a choice of a 20% haircut or potentially losing all of the money they are due if the airline slipped into administration, the creditors voted in favour.
In a statement, the airline said:
“In order to complete the private-only, solvent recapitalisation of the airline, our Restructuring Plan is going through a court-sanctioned process under Part 26A of the UK Companies Act 2006.
“Today, Virgin Atlantic has reached a significant milestone in safeguarding its future, securing the overwhelming support of all four creditor classes, including 99% support from trade creditors who voted in favour of the Plan.
“The next step is an English High Court hearing on 2 September to sanction the Restructuring Plan. We remain confident that the plan represents the best possible outcome for Virgin Atlantic and all its creditors and believe that the court will exercise its power to sanction the Restructuring Plan, at a hearing scheduled on 2 September. A US Chapter 15 procedural hearing will follow on 3 September, ensuring Virgin Atlantic’s Restructuring Plan is recognised in the US, paving the way for the £1.2bn private only, solvent recapitalisation of Virgin Atlantic.
“Achieving this milestone puts Virgin Atlantic in a position to rebuild its balance sheet, restore customer confidence and welcome passengers back to the skies as soon as they are ready to travel.”
Where is the new money coming from?
Despite the £1.2 billion headline figure being quoted, the deal involves surprisingly little new money. This is important, because you need real money – as opposed to write-offs or deferrals – to pay the bills.
Virgin is raising:
£30 million via a loan secured against an airline engine, which has been removed from the security package of an existing loan
£200 million via a loan (note this a loan, not equity) from Virgin Group
£170 million from hedge fund Davidson Kempner, in the form of a secured loan – although no-one is sure exactly what assets are left to secure a loan against
The remainder of the £1.2 billion comes from converting £400 million owed to Virgin Group and Delta Air Lines into preference shares and from waiving certain future payments.
Some existing loans and aircraft leases have also been restructured to reduce the short term cash drain on the business, although no money has been written off.
For now, Virgin Atlantic flies on.
With only £400 million of ‘real’ new money in the bank, however, we can only hope that long-haul flying – in particular transatlantic long-haul flying – recovers quickly.