Houlihan Lokey Advises Virgin Australia

Houlihan Lokey is pleased to announce that Virgin Australia has completed its sale out of voluntary administration (VA) to Bain Capital via a deed of company arrangement (DOCA). Houlihan Lokey advised Virgin Australia on its restructuring and recapitalization options and was appointed by the administrators as lead advisor on the sale and/or recapitalization.

The sale, facilitated through a DOCA, allowed Bain to reset the capital structure, rationalize the fleet, and exit Virgin Australia from administration. The sale included the assumption of all employee entitlements (A$448 million) and travel credits (A$604 million) in full, restructure of ~A$3.3 billion in finance facilities/leases in relation to fleet, and a cash contribution of A$447million–$572 million, delivering a return for unsecured creditors (including bondholders) of 9–13 cents.

Virgin Australia’s over 7,000 creditors voted overwhelmingly in favor of the DOCA (99% by value, 97% by number), with financial close occurring on 17 November 2020.

Virgin Australia is Australia’s second largest airline group. Pre-VA, Virgin Australia operated domestic, international, low-cost carrier, and loyalty divisions, with revenue of A$5.9 billion carrying 25 million passengers a year. Its loyalty program, Velocity, had 10.3 million members and almost 90 partners globally. Prior to COVID-19, Virgin Australia had an already leveraged capital structure with adjusted net debt to EBITDAR of 5.3x and total liabilities of ~A$6.8 billion at April 2020, and it had experienced cumulative losses of ~A$2.2 billion between 2009 and 2019.

The three-stage sale process maximized competitive tension and expediency, culminating in a sale to Bain. Bain entered into a binding implementation deed to acquire Virgin Australia on 26 June, 67 days post-VA. Houlihan Lokey negotiated a payment undertaking deed (effectively a break fee) from Bain of A$750 million and interim funding of A$125 million to ensure the administrators were economically off-risk by 1 July.

Houlihan Lokey led key workstreams, including interim funding; bidder, process, and stakeholder management (creditors, shareholders, government entities, lessors, unions, and airports); data room and Q&A; creation of a proprietary creditor returns model; bid assessment; and negotiation of the sale.