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Virgin Atlantic saved (for now) as creditors approve financial refinancing

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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.

Virgin Atlantic saved (for now) as creditors approve refinancing

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.”

Virgin Atlantic saved (for now) as creditors approve refinancing

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.

What next?

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.


HFP Virgin Atlantic Rewards credit card

How to earn Virgin Points from UK credit cards (September 2021)

As a reminder, there are various ways of earning Virgin Points from UK credit cards.  Many cards also have generous sign-up bonuses.

You can choose from two official Virgin Atlantic credit cards (apply here, one has a bonus of 30,000 Points until 15th October 2021):

Virgin Rewards credit card

Virgin Atlantic Reward Mastercard

The UK’s most generous free Visa or Mastercard at 0.75 points / £1 Read our full review

Virgin Rewards Plus credit card

Virgin Atlantic Reward+ Mastercard

30,000 points bonus and the most generous non-Amex for day to day spending Read our full review

You can also earn Virgin Points from various American Express cards – and these have sign-up bonuses too.

American Express Preferred Rewards Gold is FREE for a year and comes with 30,000 Membership Rewards points, which convert into 30,000 Virgin Points:

Nectar American Express

American Express Preferred Rewards Gold

Your best beginner’s card – 30,000 points, FREE for a year & two airport lounge passes Read our full review

Until 2nd November 2021, there is a special offer on The Platinum Card from American Express.

You will receive a sign-up bonus of 60,000 Amex points which converts into 60,000 Virgin Points.

American Express Platinum card Amex

The Platinum Card from American Express

60,000 points and an unbeatable set of travel benefits – for a fee Read our full review

Click here to read our detailed summary of all UK credit cards which earn Virgin Points

(Want to earn more Virgin Points?  Click here to see our recent articles on Virgin Atlantic and Flying Club and click here for our home page with the latest news on earning and spending other airline and hotel points.)

Comments (38)

  • mutley says:

    Hurrah! I love Beardy airlines, and my 350000 points are safe!

    • Peter K says:

      I wouldn’t rejoice too much just yet. It’s another step towards their survival but it’s not the final one.

      • Vegas4me says:

        Wasn’t the miles Club sold to a separate country in 2018. Virgin Red It’s called I think? So if Virgin Atlantic goes under the miles should still be safe. You won’t be able to redeem on Virgin Atlantic flights of course, but should be ok for KLM/ Delta and Virgin wines or other Virgin Group companies. Virgin Galactic flights look like finally starting soon and this will rake in money for Branson.

        • Rob says:

          No it won’t. Those deals with other airlines disappear if Virgin Atlantic disappears. Why would these airlines sell seats to Virgin Red for peanuts with no reciprocity?

          You also assume that Virgin Red is solvent. It probably isn’t. Do you seriously believe it has enough money in the bank to fund redemptions based on 0.5p per mile? My wife and I have over 1.5 million Virgin miles between us. Do you reckon there is £7,500 in reserve somewhere just in case we choose to spend them all tomorrow on third party things like Hilton miles? It exists on the basis that the money coming in each day covers the money going out.

          Remember airberlin. It turned out that airberlin had done a deal to conserve cash and wasn’t even paying its (separately owned) frequent flyer programme for miles generated via its flights.

          • insider says:

            The loyalty part is probably the most solvent part of the business right now. Few redemptions taking place bar the odd Hilton conversion, but they must be still raking in cash on points issued via credit card spend.

  • jessiefan says:

    Well done Virgin, and without any taxpayer handouts.
    But can we please get some decent deals to USA please, prices seem high!

    • Mikeact says:

      I noticed earlier today, you were on about ‘Branson haters’. I guess that was a bit of a wind up as I’m not aware of any on here ?

  • ChrisW says:

    Deck chairs. Titanic

    Etc.

    • Stu N says:

      Agreed. Until UK-US travel starts to recover, Virgin will continue to haemorrhage cash. I don’t see them lasting the winter.

  • Mikeact says:

    Not too sure I would be happy to be an unsecured creditor, depending upon the type of company I was running and the various implications. And certainly going forward I would be looking for alternative markets if at all possible.

  • Chris Heyes says:

    Rob What your estimate of how long Virgin (given your earlier background) can keep afloat if U.S. doesn’t allow tourists in ?
    this current year

    • insider says:

      my crude guess is this. Virgin costs excluding fuel are around £2bn. Let’s say that they have managed to reduce this by 60%, then their current burn rate is about £800m a year. Given that they were about to run out of cash, but have managed to raise £400m, i reckon that gives them about 6 months, if no revenue comes in.

      A post by Robert Boyle, ex-IAG director of strat (link below) says that they have £350m of credit card liabilities – if they have to refund all of this, I’m not sure they make it through the winter…

      https://www.gridpoint.consulting/blog/virgin-atlantic-rescue-deal-a-drop-in-the-ocean

    • Rob says:

      Dunno. Part of the restructuring is that a lot of bills are not going to paid for a while, eg leases, so potentially longer than you think. Realistically they are probably planning to reach December and then get a big cash influx in the New Year for new bookings.

  • Harry T says:

    VS are going to struggle to survive the rest of 2020. Transatlantic travel likely won’t occur without a change of US administration and a huge, sustained drop in covid cases. Vaccines won’t help much, as they take months to implement, and the best case situation is that viable candidates finish the necessary trials around November.

    • Callum says:

      I completely disagree… Trump is FAR more likely to remove the restrictions given he doesn’t remotely care how many Americans catch it… They’re already starting to be wound back right now in fact.

      It wouldn’t remotely surprised me if there’s a pre-election announcement that the best president the world has ever seen has done such an amazing job that the restrictions can be dropped. He’s said far, far crazier things many times.

      • Harry T says:

        I don’t think you understand how Trump uses restrictions on emigration and visas to appeal to his anti immigration, xenophobic base.

  • Briandt says:

    How long is £400 million likely to last ….. best guess ?

  • Mikeact says:

    Seems to me that an awful lot of work has gone into this by ‘various financial experts’ for a nett result of £400 million. Perhaps there is more to this story, as surely these experts could work if out themselves that it still doesn’t bode well going forward ? (But,what do I know..)

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