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Virgin Atlantic aims to land debt restructuring by Sept 3
[LONDON] Virgin Atlantic Airways is on track to agree and implement a successful £1.2 billion (S$2.15 billion) recapitalisation plan by Sept 3 after filing for Chapter 15 protection from creditors in the US on Tuesday, according to sources.
The airline is set to become the first company to test the new "restructuring plan" - the actual process of implementing the proposed deal - that forms part of the UK's newly introduced insolvency laws, when it goes to court in England on Aug 25 to negotiate with creditors.
In order to progress with the UK insolvency process, Virgin Atlantic was obliged to seek protection from creditors in the US under Chapter 15 of the US Bankruptcy Code, which allows a foreign debtor to shield assets, to ensure that US creditors would be bound by the UK restructuring plan.
"It is just a procedural step to ensure that the UK restructuring plan is effective in the US," said one restructuring lawyer.
A UK court sanction hearing is then scheduled for Sept 2 when it is expected an order will be given to sanction and approve the restructuring plan in conjunction with a Chapter 15 court order in the US to recognise the plan there.
The closing of the entire deal and implementation of the recapitalisation is then expected on Sept 3.
"It is anticipated that the deal will close successfully and on schedule," said one of the sources.
The company was under some pressure to get the deal done by September otherwise the minimum cash covenants in some of its bonds would be triggered, the source said.
In a statement, a Virgin Atlantic spokesperson said: "With support already secured from the majority of stakeholders, it's expected that the restructuring plan and recapitalisation will come into effect in September. We remain confident in the plan."
Virgin Atlantic has had to close its Gatwick base and cut over 3,500 jobs to reshape in light of the Covid-19 pandemic, which has grounded planes and slashed demand for air travel.
Founder Richard Branson, whose Virgin Group owns 51 per cent of the airline alongside US airline Delta with 49 per cent, said in April the airline would only survive if it received support from the UK government.
However, it managed to clinch a deal without public funding. Virgin Group will invest £200 million, as part of £600 million in support from shareholders.
New partner Davidson Kempner Capital Management, an investment firm, will also provide £170 million in secured funding, while creditors are giving the airline support through over £450 million of deferrals.
Restructuring advisers will be watching with interest how the courts interpret the new UK Corporate Insolvency and Governance Act 2020, which became law in July, with the deal setting a precedent in the market.
Under the new restructuring plan, only 75 per cent of creditors by value across all classes need to agree the deal before it can be implemented, instead of the more onerous 75 per cent by value and 50 per cent of creditors in each class needed under the existing UK scheme of arrangement. This means that, unlike with the scheme, a dissenting class can be forced to agree to the restructuring, in a process called a cross class cramdown.