Virgin Atlantic Gets OK To Take COVID-19 Refinancing To Vote

By Paige Long
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Law360, London (August 4, 2020, 3:45 PM BST) -- A London judge gave Virgin Atlantic the go-ahead on Tuesday to take its planned £1.2 billion ($1.5 billion) recapitalization to creditors for approval, after the airline said it is facing a severe liquidity crisis because of the coronavirus pandemic.

A judge has said he will sign off an order allowing Virgin Atlantic to hold four meetings with its creditors by the end of August. (AP)

Judge William Trower said he will sign off an order allowing Virgin Atlantic Airways Ltd. to convene four meetings with its creditors by the end of August. The decision marks the first court-backed step in the airline's proposed restructuring. A further hearing has been scheduled for September to formally sanction the plan.

"This is not one of those cases where the court is skeptical of the deadlines being proposed," Judge Trower said at a High Court hearing held online. "The financial position of the company is critical."

He said he has been shown Virgin Atlantic "is on the brink of collapse." Without a recapitalization, there is a high probability that it will enter into insolvency in September and have to start the process of winding down and selling its assets, incurring significant losses to creditors, the judge added.

Virgin Atlantic Airways forms part of Virgin Atlantic Group, which has nearly 7,000 employees and supports thousands of additional jobs through its supply chain.

The group announced its plans for a five-year recapitalization for its airline and holiday businesses in July. It said it was prompted to act due to the "severe impact of the COVID-19 pandemic on the global economy, the nation and the travel and aviation industry."

The proposed refinancing package is worth more than £1.2 billion and will be delivered in phases over 18 months if approved.

David Allison QC, representing Virgin, said earlier at Tuesday's hearing that the pandemic has caused "unprecedented disruption to the global aviation industry" and that his client's passenger bookings are currently down 89% compared with last year.

He said that unless there is an injection of new money Virgin Atlantic's liquidity will drop to a "critical level" by Sept. 21, allowing bondholders to demand security held over the company's landing slots at Heathrow Airport.

The slots are vital to the business, so the company would then run out of money altogether by Sept. 28, Allison told the judge.

"The situation gets progressively worse thereafter," he said. "There is a very significant risk of very small returns to unsecured creditors if the restructuring plan does not go through, and the company [enters] insolvency."

The company said it has secured new debt facilities worth £170 million and a $30 million loan facility from third-party investors, as well as a further £300 million facility from an investment subsidiary. It says the refinancing plan will reduce its debt to a sustainable level and permit it to operate as a "going concern."

"The company's clear evidence is that this is the only deal available," Allison said.

The plan will affect four different types of creditors, including lenders under a secured revolving credit facility agreement, lessors under several aircraft that have been leased to the company, trade creditors, and other creditors that are connected to the company.

Judge Trower's order Virgin Atlantic to host four separate meetings so that the different groups of creditors can vote on the proposals, before coming back to the High Court to raise any issues and seek final approval.

Virgin had to assure the judge that all creditors will be informed and given access to the meetings, which will each be held virtually.

The plan is the first to come before the court under the new Part 26A of the Company Act 2006, which received Royal Assent in June and is aimed at helping businesses that need to restructure their debts due to the impact of COVID-19. It enables the ability to group creditors together so they can vote in a single class. The judge has to identify commonalities such as the same legal rights or that they would suffer similar disadvantages if the restructuring is not sanctioned.

Allison told the judge that Virgin did not have any financial difficulties before the pandemic, but has since been forced to retire seven aircraft, suspend operations from Gatwick Airport, and reduce its employee headcount from about 10,300 to about 6,800. It also switched its focus to cargo-only flights.

The company also filed a Chapter 15 petition Tuesday in New York seeking recognition of its U.K. insolvency proceedings in the United States.

Virgin Atlantic, which usually carries six million passengers a year, restarted passenger flights in July to a limited number of destinations, but current interest is a quarter of 2019 levels. It predicts demand is likely to remain low for the rest of the year, according to court documents.

Virgin Atlantic is represented by David Allison QC, Ryan Perkins and Lottie Pyper of South Square, instructed by Allen & Overy LLP.

The case is Virgin Atlantic Airways Ltd., case number CR-2020-003222, in the Insolvency & Companies List of the Chancery Division, the High Court of Justice of England and Wales.

--Editing by Rebecca Flanagan.

For a reprint of this article, please contact reprints@law360.com.

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