Houlihan Lokey Advises Virgin Atlantic
Houlihan Lokey is pleased to announce that Virgin Atlantic Airways Ltd. (Virgin Atlantic) has completed its c. £1.2 billion recapitalisation plan on 4 September 2020 by means of the first Restructuring Plan under the new Part 26A of the UK Companies Act, including a £170 million new debt raise from Davidson Kempner.
Virgin Atlantic was founded 36 years ago by entrepreneur Sir Richard Branson and carried approximately 6 million customers in 2019. Headquartered in London, the airline and its holiday business, Virgin Holidays, employs approximately 6,500 people worldwide, serving 25 destinations across four continents. Alongside Delta Air Lines and Air France-KLM, Virgin Atlantic operates a leading transatlantic joint venture between the UK and the US with onward connections to more than 200 international destinations, offering a comprehensive route network and set of flight schedules, competitive fares, and frequent flyer benefits across all carriers.
Global aviation was one of the first and most severely impacted industries following the outbreak of the COVID-19 pandemic and expected to be one of the last to fully recover. As a result, Virgin Atlantic’s passenger volumes fell by 98% in Q2, while capacity reduced by 60% in the second half of 2020, with pre-crisis levels unlikely to return until 2022/2023.
Despite drastic operating measures—including the reduction of its workforce, pay cuts, fleet retirements, and the closure of the London Gatwick base, amongst others—the net unrestricted cash position was forecasted to fall below the minimum threshold to operate the business by mid-September, eventually triggering the rights of certain creditors to start enforcement action over certain assets of the company and, ultimately, threatening the company's ability to continue to operate as a going concern.
Houlihan Lokey was formally retained in May to assist Virgin Atlantic in (i) raising third-party capital and (ii) leading restructuring negotiations with its existing creditors. On 14 July, following intense negotiations—in record time—to secure the support from credit card acquirers, lessors, and all other stakeholders, the company announced the agreement in principle with the majority of stakeholders for a solvent recapitalisation of the airline to rebuild its balance sheet and enable it to return to profitability from FY 2022 onwards. Houlihan Lokey also had to assist in negotiations with the UK government, including organising an "any and all" offers invitation that was circulated to more than 300 investing institutions and elicited more than 140 requests for further information under NDAs.
On 4 September, the restructuring and new money financing were implemented and provided c. £1.2 billion of liquidity over the life of the plan, consisting of (i) c. £600 million of shareholder support over the life of the five-year business plan, including £200 million of new money from Virgin Group and c. £400 million of shareholder payment deferrals and waivers, (ii) £170 million of new secured financing provided by Davidson Kempner, and (iii) more than £450 million of payment deferrals from operating lessors, finance lessors, and other trade creditors. The company has also secured (i) a three-year extension of its $280 million RCF and (ii) the support of credit card acquirers to continue funding the business.
The transaction was fully executed and implemented by means of the first Restructuring Plan under the new Part 26A of the UK Companies Act and a US Chapter 15. The legislation around the English court-sanctioned process was authorised by Royal Assent on 25 June for the express purpose of enabling businesses affected by the pandemic to restructure their debts. The new Restructuring Plan introduced, among other things, a cross-class cramdown mechanism to overcome opposition from a particular class of dissenting creditors.
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