Virgin Australia Holdings Limited - Analysis of Bondholders' Position 22 APRIL 2020 - European Leveraged ...
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Private & Confidential Virgin Australia Holdings Limited Analysis of Bondholders' Position 22 APRIL 2020
Virgin Australia – Strictly Private & Confidential -1-
Virgin Australia Holdings Limited (ASX: VAH)1
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Background2:
Virgin Australia is Australia's second largest airline group after Qantas. Virgin Australia's business spans four operating segments – Virgin Australia Domestic,
Virgin Australia International, Tigerair Australia and Velocity. Virgin Australia also operates in the domestic, short-haul international and long-haul international
cargo markets.
Virgin Australia Domestic – flights to 39 destinations in Australia using a fleet of 77 narrow body aircraft. In FY2019, it contributed 63.0% of total
revenue and income of Virgin Australia Group.
Virgin Australia International (VAI) – through its global network, it provides access to 425 international destinations. VAI offers international services to
17 destinations across New Zealand, Pacific Islands, North America and Asia through its fleet of 22 aircraft. The remaining 408 international flights are
operated through its strategic alliances and partnerships. VAI's international business contributed 21.4% of FY2019 revenue and income.
Tigerair Australia – This is Virgin's low cost carrier that operates flights to destinations within Australia using its fleet of 17 narrow body aircraft. Tigerair
contributed 9.7% of total revenue and income in FY2019.
Velocity – Virgin Australia's loyalty program with a network of around 90 program partners, approximately 70% of Velocity revenue points are earned by
members with partners other than Virgin Australia. Velocity contributed 5.9% of total revenue and income for FY2019.
Fleet – As at 30 June 2019, Virgin Australia and its subsidiaries operated a fleet of 133 aircraft, including Boeing 737 and Boeing 777 aircraft, Airbus A330 and
Airbus A320, ATR aircraft and Fokker F100 aircraft. Since FY2015, Virgin Australia has revamped its fleet from eight aircraft models to six aircraft models in
FY2019 and intends to simplify further. It is targeting a fleet that will be predominately comprised of Boeing aircraft.
Delivery of Boeing 737 MAX aircraft orders was deferred to July 2021 and 15 of its 737 MAX8 aircraft on order were converted to 737 MAX10 aircraft in order to
defer the capital expenditure.
Shareholders - As at 30 September 2019, the shareholders in Virgin Australia consisted of: Etihad (20.97%), Singapore Airlines (20.03%), Nanshan Group
(20.01%), HNA Innovation (19.86%), Virgin Group (10.02%), Other (9.11%) – 100%.
1
Disclaimer: This presentation is based upon publicly available information and is intended to be a general overview based on limited knowledge. It is not intended to be, and should not be used as, a
substitute for legal advice. Hogan Lovells accepts no responsibility for any actions taken or not taken on the basis of this presentation.
2
Virgin Australia Holdings offering circular US$400m 8.125% senior notes due 2024 dated 14 October 2019
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Virgin Australia – Strictly Private & Confidential -2-
Virgin Australia Holdings Limited (VAH)
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Issues:
1. On 21 April 2020, VAH and a number of its subsidiaries were placed into voluntary administration, with Vaughan Strawbridge, John Greig, Sal Algeri and
Richard Hughes of Deloitte appointed as voluntary administrators. The voluntary administrators have indicated that their intention is to undertake a
process to restructure and refinance the business and bring it out of administration as soon as possible, and that in the meantime, VAH will continue to
operate its scheduled international and domestic flights which are helping to transport essential workers, maintain freight corridors and return Australians
home. According to the ASX announcement dated 21 April 2020, Velocity Frequent Flyer Holdco Pty Ltd was not placed into administration.
2. VAH has been facing the issues outlined below which we anticipate would need to be addressed as part of any restructuring of the company.
3. Increasing uncertainty around whether VAH can obtain additional financing to ensure it has sufficient liquidity whilst COVID-19 restrictions in Australia will
remain in place.
4. Travel curbs are increasingly straining liquidity, working capital is increasingly being affected by cancellations, minimal bookings and outflows at its loyalty
programme as members redeem points for non-flight benefits.
5. The airline has now grounded most of its fleet to minimise cash outflows.
6. The Australian government announced in March 2020 relief measures to provide refunds of airport charges incurred since February 2020 and further
support measures were announced in late April 2020 to provide for a government-subsidised minimum domestic network to operate from April to June
2020 to service state and territory capital cities and major regional centres. State governments have also offered conditional rescue packages.
7. Fitch3 believes the airline will run out of liquidity and be unable to meet its debt service requirements beyond September 2020 without additional funding.
VAH has limited unencumbered assets against which it can raise further secured debt to shore up liquidity. VAH's ability to secure this funding is crucial
to maintain its viability.
8. The Australian government has recently indicated that whilst certain lockdown restrictions may be lifted in as little as four to five weeks' time, social
distancing measures are likely to be implemented for at least another six months. It therefore remains uncertain when travel restrictions are lifted how
long it will take for consumers to return to travel and VAH's operations are able to return to normal.
3
Fitch Ratings downgrade of Virgin Australia Holdings Limited to 'CCC-' from 'B-' – 17 April 2020
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Australian restructuring regimes
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Following the appointment of administrators, efforts will be made to restructure and refinance the business. A restructuring can be achieved by way of a deed of
company arrangement ("DOCA"). Alternatively, whilst creditors' schemes of arrangement in Australia are invariably pursued outside of a formal insolvency
process such as administration, there may still be scope to consider a restructure of VAH via a scheme of arrangement (perhaps through some form of "holding"
DOCA).
Voluntary administration and deeds of company arrangement
1. Purpose: The object of voluntary administration is to maximise the chances of the company, or as much as possible of its business, continuing in
existence, or if that is not possible, to provide for a better return for creditors and members than would result from an immediate winding up. It is most
commonly instigated by the directors where they have formed the view that the company is insolvent or likely to become insolvent.
2. A statutory moratorium applies immediately on appointment of the administrator, which stays all litigation against the company and prevents the
enforcement of security interests (with some exceptions for secured creditors holding security over the whole or substantially the whole of the company's
assets). Australia has also adopted the Cape Town Convention and Aircraft Protocol, which may affect the basis on which the administrators are required
to deal with leased aircraft.
3. It would usually be necessary to apply for recognition of the voluntary administration (for example under the US Chapter 15 procedure) to enforce the
statutory moratorium in overseas jurisdictions. We are not aware of any US authorities which have specifically granted such relief in respect of an
Australian voluntary administration (noting that voluntary administration is a statutory but not judicial process), but the prevailing market view in line with
current US authorities is that recognition should be available on the basis that voluntary administration constitutes a statutory framework affecting the
company.
4. Suspension of directors' powers: The voluntary administration process is controlled by the administrator. Unlike in Chapter 11 bankruptcy,
administration is not a debtor in possession regime. All powers of the company and its directors are suspended during the course of the administration.
5. Administrators' powers: The administrator has broad powers to manage the company's business and affairs (but generally not to disclaim or reject third
party contracts). This includes a power to continue to operate the business. The administrator incurs personal liability for debts they incur in the operation
of the business, and rent payable in respect of leased assets which the administrator continues to use after five business days from being appointed
(such as leased aircraft used in VAH's business). In the absence of adequate cash flow to cover the liabilities, the administrator would usually be
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expected to relinquish the leased property. However, there is a very recent court decision where administrators successfully applied for orders absolving
them of liability for rent under a real property lease as a result of the COVID-19 crisis4.
6. DOCA: The process allows a company in financial distress time to develop and implement a restructuring plan with its key stakeholders via a DOCA,
which is a binding agreement entered into out-of-court that regulates the arrangements between a company and its creditors. It is only available as an
extension of the voluntary administration process. It will generally be necessary to apply for recognition of a DOCA (for example under the US Chapter
15 procedure) to protect the company and its assets from legal action outside Australia in accordance with the terms of the DOCA. We are not aware of
any US authorities which have specifically granted such relief in respect of an Australian DOCA.
7. DIP finance: Whilst debtor in possession finance is not a formal concept in Australia as it is in the US, it is possible for an administrator to raise priority
DIP or rescue finance on a non-recourse basis. As above, an administrator will incur personal liability for the DIP finance, but has an indemnity and
effectively a super-priority lien over the company's assets for such liabilities whereby the funding will rank pari passu with the costs and expenses of the
administration (and ahead of the administrators' remuneration). The lien for the administrators' borrowings has super-priority over debts secured over
circulating (ie "floating") assets of the company if the secured party consents (but does not have security over debts secured by non-circulating (ie "fixed")
assets. Commonly, an administrator will seek a court order to limit their liability to the extent of the indemnity and lien over the assets, and effectively
permit them to borrow on non-recourse terms.
8. Timing: The administration process takes about three to five weeks, but this timetable can be extended by Court order, typically in circumstances where
there is particular complexity or if there is a need for more time for a restructuring proposal to be developed. In complex cases, the process can take
more than 12 months.
9. Appointment process: The administrator is required to hold a first meeting of creditors within eight business days after the appointment. The limited
purpose of this meeting is to provide an opportunity for creditors to remove and replace the administrator with another practitioner, and to decide if they
would like to appoint a committee of inspection.
10. Creditors' meetings: The administrator must hold a second meeting of creditors, which is the critical meeting of creditors in the administration process,
within five business days' either side of an initial twenty business day convening period. This convening period may be extended by order of the Court as
discussed above.
11. Before the second meeting, the administrator is required to report to creditors on their investigations into the company's affairs and provide their opinion
on whether it would be in the best interests of creditors for (i) control of the company to be handed back to the directors (which is extremely rare because
it requires the company to be solvent), (ii) the company to be placed into liquidation, or (iii) the company to execute a DOCA (if one has been proposed).
4
Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 472
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12. The decision as to the future of the company is made by creditors at the second meeting and only the three options outlined above are available.
13. Voting threshold: A resolution at the creditors' meeting is passed by a majority in both number and value of the creditors' voting. There is no
requirement to divide creditors into separate classes for voting purposes in relation to a DOCA. Creditors such as employees and lessors can therefore
become critical stakeholders in administrations such as this where there are large numbers of employees and leased assets.
14. A DOCA cannot affect rights of secured creditors or lessors/owners of property used by the company, unless the DOCA provides for it and the creditor
votes in favour of it.
15. There are generally very few restrictions on the types of DOCAs that can be executed. DOCAs can be used to affect a rescheduling and/or compromise
of debt, or a recapitalisation, including by way of debt-for-equity swap.
16. In particular, a deed administrator has a statutory power to effect a transfer of shares in the company with leave of the court. Leave of the court may only
be given where the transfer does not result in unfair prejudice to the shareholders, and is therefore more likely to be given where there is valuation
evidence which demonstrates that the value of the company on a liquidation basis breaks in the debt, not the equity. A transfer of shares under a DOCA
may also require specific waivers from the corporate regulator in Australia (ASIC) if a single party will acquire more than 20% of the voting power in a
listed company.
17. DOCA Limitations: There are some limitations on what a DOCA can achieve:
a. If there are dissenting secured creditors or lessors/owners (such creditors' rights cannot be affected by the DOCA unless they vote in favour of the
DOCA), a scheme of arrangement may be necessary in order to cram down those dissenting parties (see below).
b. A DOCA cannot compromise or extinguish claims against third parties, only the company that is (or companies that are) subject to the DOCA.
18. If a DOCA is not proposed or a DOCA fails and the company goes into liquidation, a liquidator has powers to claw back payments made by the company
to unsecured creditors in the six months prior to the appointment of the administrator, if the company was insolvent at the time of those payments. There
are defences available to resist such claw-back action.
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Schemes of arrangement
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1. Outline: A scheme of arrangement allows a company to enter into a court-approved arrangement which compromises or re-arranges the rights of its
creditors. Whilst creditors' schemes are invariably pursued outside of a formal insolvency process such as administration, there may still be scope to
consider a restructure of VAH via a scheme (perhaps through some form of "holding" DOCA).
Usually, the process takes three to six months and broadly is as follows:
A proposal for a scheme of arrangement is drafted into a draft scheme document and an accompanying explanatory statement (forming the scheme
booklet). The statement must clearly explain the terms of the proposed scheme and its effect on the company, its creditors and (if applicable) its
members.
The applicant for the scheme is required to assign creditors to classes. Classes comprise of creditors who have similar rights, such that they can consult
together with a view to their common interests (eg secured and unsecured creditors, and related and non-related party creditors).
The scheme booklet is provided to the regulator, ASIC, for review.
An application is made to the Court to seek an order for the holding of meetings of the different classes of creditors to consider the proposed scheme.
The meetings are convened. A scheme will be successful if each separate class of creditors approves it by a majority in number and at least 75% in value
of the creditors in each class voting at the meeting.
If the scheme is approved by each class of creditors, it must be finally approved by the court at a second hearing. The second hearing provides creditors
with an opportunity to raise and be heard on any issues in relation to the proposed scheme, and for a binding determination to be made in respect of
those issues.
The scheme becomes binding on all parties once approved by the Court.
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2. Classes: Unlike under a DOCA, creditors must be assigned to classes. Classes comprise of creditors who have similar rights such that they can consult
together with a view to their common interests. Usually, secured and unsecured creditors, and related and non-related party creditors will form separate
creditor classes, but there may be other classes required depending on the circumstances. A scheme must be approved by a majority in number and
75% in value of the creditors in each class voting at the scheme meeting.
3. Court sanction: A scheme is subject to the overall sanction of the Court even where it is approved by the requisite majority of each class of creditors at the
scheme meeting. The Courts will have particular regard to issues of class composition and fairness where a scheme is contested.
4. Due to the need for Court sanction and the involvement of the corporate regulator in Australia, a scheme will typically take three to six months to
implement. It will generally be necessary to apply for recognition of a scheme (for example under the US Chapter 15 procedure) to protect the company
and its assets from legal action outside Australia in accordance with the terms of the scheme.
5. Benefits of a scheme: A scheme has particular advantages over a DOCA where there is a need to:
a. bind or otherwise cram down dissenting secured creditors or owners/lessors (but those parties have an opportunity to make submissions to the
Court);
b. restructure the company outside of a formal insolvency process (particularly where insolvency would have a potentially harmful impact on key
contracts);
c. compromise creditors' claims against a third party (such as a guarantor);
d. benefit from statutory exemptions from the prohibition on a single party acquiring more than 20% of the voting power in a listed company where
the acquisition occurs under a scheme (although other waivers from the corporate regulator and market exchange may still be required depending
on the terms of the scheme).
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Bonds and Events of Default
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1. VAH is the issuer of two USD denominated senior unsecured notes, two ASD denominated medium term note programmes and ASD ASX quoted
unsecured notes as summarised below:
Bond/notes #1 #2 #3 #4 #5
Description 7.875% Senior A$150m 8.25% A$250m 8.075% 8.125% Senior Unsecured notes
Notes due 2021 Fixed Rate Notes Fixed Rate Notes Notes due 2024
due 30 May 2023 due 5 March 2024
Maturity date 15 October 2021 30 May 2023 5 March 2024 15 November 2024 26 November 2024
Total debt US$350,000,000 AUD150,000,000 AUD250,000,000 US$425,000,000 AUD325,000,000
Interest 7.875% 8.250% 8.075% 8.125% 8.0%
Interest payment Semi-annually (15 Semi-annually (30 Semi-annually (5 Semi-annually (15 Semi-annually (26
April, 15 October) May, 30 November) March, 5 September) November, 15 May) May, 26 November)
Governing law New York NSW, Australia NSW, Australia New York NSW, Australia
Next interest payment date in 2020 Which bond? Paid? Cross default clause in bond?
15 April USD350m Yes No
Announcement of filing for voluntary administration on 21 April 2020
15 May USD425m No
26 May AUD325m Yes
30 May AUD150m No
5 Sept AUD250m No
15 Oct USD350m No
15 Nov USD425m No
26 Nov AUD325m Yes
30 Nov AUD150m No
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2. Next steps for Bondholders to consider following the occurrence of an Event of Default: 5 6
Bonds/Notes Next Steps Threshold for Trustee Action
US$350m 7.875% October 2021 Certain events of bankruptcy and insolvency of VAH We understand that the Indenture provides that the holders
constitute an Event of Default7. of a majority in principal amount of the outstanding Notes
may direct the time, method and place of conducting any
Assuming that voluntary administration of VAH would proceeding for any remedy available to the Trustee for the
constitute such an Event of Default, the principal amount Notes, or exercising any trust or power conferred on the
of and accrued and unpaid interest on the Notes shall Trustee with respect to the Notes.
automatically become and be immediately due and
payable. On the basis that the full amount of debt is outstanding then
the requisite threshold is USD175,000,001.
No declaration or other act on the part of the Trustee or
any holder is required.
AUD150m 8.250% May 2023 VAH must give notice to each Holder of the occurrence Not Applicable. There is no requisite threshold required for
of any Default or Event of Default which is subsisting this type of Event of Default.
within 30 days of becoming aware of it, specifying the
event and any action being taken or proposed by the
Issuer to remedy it.
Bankruptcy and Liquidation of VAH both constitute an
Event of Default.
If such an Event of Default occurs and is continuing then
any Holder of Notes may by notice to the Issuer and the
Registrar declare that those Notes will become
immediately due and payable upon the date of such
notice.
AUD250m 8.075% March 2024 VAH must give notice to each Holder of the occurrence Not Applicable. There is no requisite threshold required for
of any Default or Event of Default which is subsisting this type of Event of Default.
5
Disclaimer: the information contained within this table is based solely on a review of the relevant information memoranda, offering circulars and retail prospectus. The respective Bond Indentures have
not been reviewed and therefore the above information is subject to further verification.
6
Any defined terms used in the table are references to the terms defined in each of the relevant instruments.
7
We understand that the Indenture contains details of the specific bankruptcy and liquidation events that would constitute an Event of Default. We have yet to review the Indenture in order to confirm that
voluntary administration of VAH would constitute an Event of Default.
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Bonds/Notes Next Steps Threshold for Trustee Action
within 30 days of becoming aware of it, specifying the
event and any action being taken or proposed by the
Issuer to remedy it.
Bankruptcy and Liquidation of VAH both constitute an
Event of Default.
If such an Event of Default occurs and is continuing then
any Holder of Notes may by notice to the Issuer and the
Registrar declare that those Notes will become
immediately due and payable upon the date of such
notice. There is no requisite threshold required for this
type of Event of Default.
US$425m 8.125% November 2024 Certain events of bankruptcy and insolvency of VAH We understand that the Indenture provides that the holders
constitute an Event of Default8. of a majority in principal amount of the outstanding Notes
may direct the time, method and place of conducting any
Assuming that voluntary administration of VAH proceeding for any remedy available to the Trustee for the
constitutes such an Event of Default, the principal Notes, or exercising any trust or power conferred on the
amount of and accrued and unpaid interest on the Notes Trustee with respect to the Notes.
shall automatically become and be immediately due and
payable. On the basis that the full amount of debt is outstanding then
the requisite threshold is USD212,500,001
No declaration or other act on the part of the Trustee or
any holder is required.
AUD325m 8.0% November 2024 Insolvency of VAH constitutes an Event of Default under The Note Trustee must take enforcement action if
the Notes. requested in writing to do so by at least 25% of the
aggregate of the principal amount of all Notes outstanding.
If such an Event of Default occurs and is subsisting, then
the Note Trustee may declare that VAH must On the basis that the full amount of debt is outstanding then
immediately redeem the notes for a redemption amount the requisite threshold is AUD81,250,001
equal to their face value plus the accrued (but unpaid) (USD51,726,190.579).
8
The Indenture contains details of the specific bankruptcy and liquidation events that would constitute an Event of Default. We have yet to review the Indenture in order to confirm that voluntary
administration of VAH would constitute an Event of Default.
9
Conversion rate of 1 AUD:0.64 USD (20 April 2020).
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Bonds/Notes Next Steps Threshold for Trustee Action
interest.
The Note Trustee may take any action permitted under
the Note Trust Deed to enforce the Notes.
In addition, if the Note Trustee, having become bound to
take action, fails to do so within 30 Business Days, then
the Noteholder is entitled to take the action that the Note
Trustee should have taken.
3. The various bonds and notes have been broadly issued and significant numbers of retail investors are thought to hold bonds in relatively small amounts.
This could frustrate efforts to gather together sufficient holders in order to be in a position to block any proposal put forward by VAH. Bondholders will
likely need to invest time coalescing with other similarly minded holders in order to be in a position to assemble a blocking stake.
Hogan Lovells
DRAFT April 2020
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Appendix 1 – VAH Capital Structure
VIRGIN AUSTRALIA HOLDINGS LIMITED CAPITAL STRUCTURE AS OF 31 DECEMBER 2019
(1)
Instrument Borrower/Issuer Issue date Interest Maturity AUDm USDm Leverag Security/Guarantors
rate e
Aeronautic finance facilities - - 2019-2030 1,346 941 The carrying amount of property, plant and
Bank loans - - 2020 221 154 equipment pledged as security and the
subsidiaries whose issued capital is pledged
as security for current and non-current
interest-bearing liabilities
Lease liabilities - - 2019-2020 371 259
Lease liabilities - - 2019-2047 1,616 1,130
Total secured debt 3,553 2,485 11.4%
AUD 250m senior notes 5-Mar-19 8.075% 5-Mar-24 Virgin Australia Airlines Holdings Pty Ltd;
Virgin Australia Airlines Pty Ltd; VB Leaseco
Pty Ltd; VAH Newco No. 1 Pty Ltd; A.C.N. 098
904 262 Pty Ltd; Virgin Australia Regional
AUD 325m notes 26-Nov-19 8.0% 26-Nov-24 Airlines Pry Ltd; Virgin Australia International
Holdings Pty Ltd; Virgin Australia International
Airlines Pty Ltd; Virgin Australia Airlines (SE
Asia) Pty Ltd; Tiger Airways Australia Pty
Virgin Australia
1,802 1,260 Limited; and Tiger International Number 1 Pty
AUD 150m notes Holdings Limited 30-May-18 8.25% 30-May-23 Ltd.
USD 425m senior notes 14-Oct-19 8.125% 15-Nov-24 Virgin Australia's Restricted Subsidiaries
(other than Virgin Australia International
Operations Pty Ltd, certain specified special
purpose vehicles, certain subsidiaries that are
USD 350m senior notes 17-Oct-16 7.875% 15-Oct-21 not Material Subsidiaries, the Velocity Sub-
Group, VAH Newco No. 2 Pty Ltd. and TA
Holdco (Singapore) Pte Ltd).
Total debt 5,354 3,745 17.2%
Cash & cash equivalent 1,108 775
Net debt 4,246 2,970 13.7%
Market capitalisation as of 667 466
13 March 2020
Enterprise Value 4,913 3,436 15.8%
Company stated EBITDA 311 217
(1H20)
Source: Debtwire, company reports 1) AUD/USD 0.69939 as of 31 December 2019 as per Oanda.com
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Appendix 2 – Virgin Australia Group Structure Chart – Simplified10 11 12
Virgin Australia International
Virgin Australia Holdings Limited (Issuer) Existing Unlisted A$
Operations Pty Ltd Pty Ltd
Notes, US$ Notes and
1 share other
share Group financings
Other financings
Virgin Australia International Holdings Pty Ltd Virgin Australia Airlines Holdings Pty Ltd
(guaranteed by VAH)
Notes and concurrent
Operational Subsidiaries Material Operational Subsidiaries US$ Notes
Virgin Australia International Airlines Pty Ltd Virgin Australia Airlines Pty Ltd
Tiger International Number 1 Pty Ltd Tiger Airways Australia Pty Limited
Virgin Australia Airlines (SE Asia) Pty Ltd Virgin Australia Regional Airlines Pty Ltd
2,210,197,600
shares
Guarantor Group Other Guaranteeing Subsidiaries
Asset Level Financing
Guarantees of Other
Aircraft Financing Subsidiaries
Other Non-guarantor Restricted Subsidiaries Financings
Other Non-guarantor Restricted Subsidiaries
(Guaranteed by VAH)
Non guarantor Restricted subsidiaries
100%
The Trust Company
(Australia) Limited Other Unrestricted Subsidiaries Velocity Frequent Flyer Holdco Pty Ltd Velocity Non-recourse
Other Velocity Subsidiaries Bank Debt
Unrestricted subsidiaries 100%
10
Extracted from Offering Circular 2019 – US$400m notes due 2024. This simplified structure chart has not been independently verified by Hogan Lovells.
11
Other Guaranteeing Subsidiaries – VAH Newco No.1 Pty Ltd, Tiger Airways Australia SPV Pty Ltd, VAH Newco No.2 Pty Ltd, VB Leaseco Pty Ltd [to be verified]
12
Shareholders: Etihad (20.97%), Singapore Airlines (20.03%), Nanshan Group (20.01%), HNA Innovation (19.86%), Virgin Group (10.02%), Other (9.11%) – 100%
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Appendix 3 – Virgin Australia – Detailed summary of Bond terms
US$350M 7.875% USD OCTOBER 202113
Trustee The Bank of New York Mellon
Events of Default An Event of Default occurs with respect to the Notes if any of the following occurs:
(1) default in any payment of the principal amount or premium, if any, on any of the Notes when such amount
becomes due and payable at Stated Maturity, upon acceleration, redemption or otherwise;
(2) failure to pay interest on the Notes when such interest becomes due and payable and such failure continues for
a period of 30 days;
(3) failure by the Company or any of its Restricted Subsidiaries to comply with any other covenants or agreements
applicable to the Notes and such failure continues for 60 days after the notice specified below;
(4) except as permitted by the Indenture, a Note Guarantee of a Significant Subsidiary is held in any judicial
proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or a Guarantor
denies or disaffirms in writing its obligations under its Note Guarantee; or
(5) certain events of bankruptcy, insolvency or reorganization described in the Indenture with respect to the
Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of its Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary (other than in connection with a
consolidation or merger of, or conveyance or transfer of all or substantially all of the assets of, a Restricted
Subsidiary permitted under the covenant described under the caption “—Merger and Sales of Assets” at such
time as such Restricted Subsidiary is solvent).
Acceleration provisions A Default under clause (3) above will not constitute an Event of Default until the Trustee notifies the Company, or the
holders of at least 25% in principal amount of the outstanding Notes notify the Company and the Trustee, of the Default
and the Company does not cure such Default within 60 days after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization with respect to the Company or its Restricted Subsidiaries that are Significant Subsidiaries) occurs and
is continuing, the Trustee or the holders of at least 25% in principal amount of the Notes then outstanding, by written
notice to the Company (and to the Trustee, if such notice is given by the holders of the Notes), may, and the Trustee at
13
Summary based upon the terms extracted from the Offering Circular dated 7 October 2016.
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the written direction of such holders (subject to being indemnified and/or pre-funded to its satisfaction) shall, declare
the principal amount of the Notes and any accrued and unpaid interest on the Notes to be due and payable. Upon such
a declaration, such amounts shall be due and payable immediately. In the case of certain events of bankruptcy,
insolvency or reorganization with respect to the Company or its Restricted Subsidiaries that are Significant
Subsidiaries, the principal amount of and accrued and unpaid interest on the Notes shall automatically become and be
immediately due and payable without any declaration or other act on the part of the Trustee or any holder.
Threshold for trustee action The Indenture provides that the holders of a majority in principal amount of the outstanding Notes may direct the time,
method and place of conducting any proceeding for any remedy available to the Trustee for the Notes, or exercising
any trust or power conferred on the Trustee with respect to the Notes. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture or, subject to certain exceptions, that the Trustee determines is unduly
prejudicial to the rights of any other holder of the Notes or that would subject the Trustee to personal liability.
Indemnification provisions Prior to taking any such action, the Trustee shall be entitled to indemnification and/or pre-funding satisfactory to it in its
sole discretion against all losses and expenses caused by taking or not taking such action.
Direct action of bondholders There is no specific provision that prevents direct action by the bondholders
Change of Control Change of control triggers:
(1) Any person or group, other than an Excluded Person, beneficially owns, directly or indirectly, more than 50% of
the voting power of the voting stock of the Company;
(2) The disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its subsidiaries taken as a whole to any person or group,
other than any Excluded Person.
In the event of a specified change of control, each holder of Notes may require Virgin Australia to repurchase its Notes
in whole or in part at a repurchase price of 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to (but not including) the repurchase date.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance
or other Disposition of “all or substantially all” of the properties or assets of the Company and its Subsidiaries taken as
a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise
established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the
Company to repurchase its Notes as a result of a sale, lease, transfer, conveyance or other Disposition of less than all
of the assets of the Company and its Subsidiaries taken as a whole to another person or group may be uncertain.
Guarantors and restricted subsidiaries The Notes will be fully and unconditionally guaranteed by certain of Virgin Australia’s subsidiaries, subject to certain
exclusions.
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 16 -
As of the Closing Date, only the following Restricted Subsidiaries of the Company will be Guarantors: Virgin Australia
Airlines Holdings Pty Ltd; Virgin Australia Airlines Pty Ltd; VB Leaseco Pty Ltd; VAH Newco No. 1 Pty Ltd; VAH Newco
No. 2 Pty Ltd; A.C.N. 098 904 262 Pty Ltd; Virgin Australia Regional Airlines Pty Ltd; Tiger Airways Australia Pty
Limited; Tiger Airways Australia SPV Pty Ltd; and Virgin Australia International Holdings Pty Ltd (and each of its direct
and indirect Subsidiaries, other than Virgin Australia Airlines (NZ) Limited).
Non-Guarantor subsidiaries include special purpose aircraft financing vehicles and other entities that cannot provide
guarantees due to contractual or legal limitations, immaterial subsidiaries and certain subsidiaries designated as
Unrestricted Subsidiaries, including Velocity Frequent Flyer Holdco Pty Ltd and other members of the Velocity Sub-
Group.
Each member of the Velocity Sub-Group, CPU Share Plans Pty Limited, as trustee of the Key Employee Performance
Plan Trust, the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin Samoa Limited will be an
Unrestricted Subsidiary and, as a result, will not provide a guarantee of Virgin Australia’s obligations under the Notes.
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 17 -
AUD150M 8.250% AUD MAY 202314
Events of Default It is an Event of Default, whether or not it is within the control of an Obligor, if any of the following events occurs and is
continuing:
(1) failure to pay: the Issuer fails to pay or repay any principal amount due on any Note when such amount
becomes due and payable or the Issuer fails to pay interest on any Note within 30 days after the same
becomes due and payable;
(2) failure to perform other obligations: the Issuer defaults in performing and observing any other Condition and
such default is not remedied within 60 days after the Issuer receives written notice of the default from a Holder
or Holders (such written notice to be identified as a ‘notice of default’ and to refer specifically to this Condition
10.1(b)) holding at least 25% in principal amount of the outstanding Notes;
(3) bankruptcy: the Issuer or any of the Issuer's Restricted Subsidiaries that is a Significant Subsidiary or any
group of Restricted Subsidiaries of the Issuer that, taken together, would constitute a Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:
a. commences a voluntary case;
b. consents to the entry of an order for relief against it in an involuntary case;
c. consents to the appointment of a Bankruptcy Custodian of it or for all or substantially all of its property;
d. makes a general assignment for the benefit of its creditors;
e. consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it;
f. takes any comparable action under any foreign laws relating to insolvency,
in each case other than in connection with a consolidation or merger, or conveyance or transfer of all of
substantially of its assets, permitted under Condition 3.7;
(4) liquidation: a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
a. appoints a liquidator of the Issuer, any Restricted Subsidiary of the Issuer that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary or for all or substantially all of its (or their) property; or
b. orders the liquidation of the Issuer, any Restricted Subsidiary of the Issuer that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, and the order or decree remains unstayed and in effect for 60 days, in each case other than
in connection with a consolidation or merger, or conveyance or transfer of all of substantially of its
assets, permitted under Condition 3.7;
14
Summary based upon the terms extracted from the Information Memorandum dated 17 May 2018.
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 18 -
(5) vitiation of Guarantee: any Significant Subsidiary or a Guarantor claims in writing that it is not bound by the
Guarantee, in either case other than in connection with a release permitted by Condition 3.2.
Bankruptcy Law means: Title 11, United States Bankruptcy Code of 1978, as amended, or any similar United States
federal or state law, and the relevant provisions of the Corporations Act 2001 (Cth) of Australia, the New Zealand
Companies Act and the law of any other jurisdiction relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganisation, administration, deed of company arrangement, creditor's scheme of arrangement, relief of
debtors or any similar proceeding or any amendment to, succession to or change in any such law.
Significant Subsidiary means: any Restricted Subsidiary of the Issuer that would be a "significant subsidiary" as
defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in
effect on the Issue Date.
Acceleration provisions The Issuer must give notice to each Holder of the occurrence of any Default or Event of Default which is subsisting
within 30 days of becoming aware of it, specifying the event and any action being taken or proposed by the Issuer to
remedy it.
If an Event of Default occurs and is continuing under Condition 10.1(c) or Condition 10.1(d) then any Holder of Notes
may by notice to the Issuer and the Registrar declare that those Notes will become immediately due and payable upon
the date of such notice.
If an Event of Default occurs and is continuing other than under Condition 10.1(c) or Condition 10.1(d) then any Holder
or Holders of Notes representing 25% or more in principal amount of the Notes outstanding may by notice to the Issuer
and the Registrar declare that those Notes will become immediately due and payable upon the date of such notice.
If on the date of a notice given in accordance with Condition 10.3(a) or Condition 10.3(b) the Event of Default to which
that notice related is continuing then the Issuer must redeem the Notes declared due and payable pursuant to such
notice by payment of their Early Redemption Amount plus (unless otherwise specified in the Pricing Supplement)
accrued interest.
Change of Control Investor put at 101% of principal amount plus accrued and unpaid interest applicable for:
(1) The sale of all or substantially all of the assets of the Issuer and its Subsidiaries taken as a whole to any
person; or
(2) Any transaction that results in a person becoming the beneficial owner of more than 50% of the voting stock of
the Issuer,
subject to exceptions for certain mergers and consolidations, intra-group transactions, transactions involving certain
shareholders (including Etihad Airways P.J.S.C., Singapore Airlines Limited, HNA Innovation Ventures (Hong Kong)
Co. Limited and the Virgin Group) or associated entities or other permitted entities, and certain other exceptions. See
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 19 -
Annex B for further details.
Guarantors and restricted subsidiaries Guarantors: Virgin Australia Airlines Holdings Pty Ltd; Virgin Australia Airlines Pty Ltd; VB Leaseco Pty Ltd; VAH
Newco No. 1 Pty Ltd; VAH Newco No. 2 Pty Ltd; A.C.N. 098 904 262 Pty Ltd; Virgin Australia Regional Airlines Pty Ltd;
Virgin Australia International Holdings Pty Ltd; Virgin Australia International Airlines Pty Ltd; Virgin Australia Airlines
(SE Asia) Pty Ltd; Tiger Airways Australia Pty Limited; Tiger Airways Australia SPV Pty Ltd; and Tiger International
Number 1 Pty Ltd.
Restricted Subsidiary means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.
Unrestricted Subsidiary means any Subsidiary of the Issuer that is designated by the Board as an Unrestricted
Subsidiary in compliance with Condition 3.6 hereof pursuant to a resolution of the Board, but only if such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding with the Issuer or any Restricted
Subsidiary of the Issuer unless the terms of any such agreement, contract, arrangement or understanding are
no less favourable to the Issuer or such Restricted Subsidiary than those that might be obtained at the time
from Persons who are not Affiliates of the Issuer;
(3) is a Person with respect to which neither the Issuer nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s
financial condition or to cause such Person to achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Issuer
or any of its Restricted Subsidiaries;
provided that, on the date of the Deed Poll, each member of the Velocity Sub-Group, CPU Share Plans Pty Limited, as
trustee of the
Key Employee Performance Plan Trust, the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin
Samoa Limited shall each be designated as an Unrestricted Subsidiary.
If the Issuer or any of its Restricted Subsidiaries acquires or creates another wholly owned Subsidiary after the Issue
Date and such newly acquired or created Subsidiary is or becomes a Material Subsidiary, unless prohibited by
applicable law, the Issuer must ensure that such newly acquired or created Subsidiary becomes a Guarantor and
executes a Guarantor Assumption Deed
As at the Preparation Date, Unrestricted Subsidiaries include Velocity Frequent Flyer Holdco Pty Ltd (Velocity Holdco),
together with each of its subsidiaries Velocity Frequent Flyer 1 Pty Ltd, Velocity Frequent Flyer 2 Pty Ltd, Velocity
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 20 -
Rewards Pty Ltd, as trustee of the Loyalty Trust, Velocity Frequent Flyer Pty Ltd, Torque Solutions (Australia) Pty Ltd,
the Loyalty Trust and any other subsidiary of Velocity Holdco (collectively referred to as the “Velocity Sub-Group”)15.
15
Velocity Frequent Flyer Holdco Pty Ltd, together with its subsidiaries, are collectively referred to as the "Velocity Sub-Group". At completion, each member of the Velocity Sub-Group was classified as
an Unrestricted Subsidiary and therefore was not subject to the covenants contained within the bond instrument. The bond document provides for Unrestricted Subsidiaries to become restricted, and as
such the Velocity Sub-Group, or any member thereof, may have been subsequently designated as a Restricted Subsidiary by the board of directors.
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 21 -
AUD250M 8.075% AUD MARCH 202416
Events of Default Event of Default if any of the following events occurs and is continuing:
(1) failure to pay: the Issuer fails to pay or repay any principal amount due on any Note when such amount
becomes due and payable or the Issuer fails to pay interest on any Note within 30 days after the same
becomes due and payable;
(2) failure to perform other obligations: the Issuer defaults in performing and observing any other Condition and
such default is not remedied within 60 days after the Issuer receives written notice of the default from a Holder
or Holders (such written notice to be identified as a 'notice of default' and to refer specifically to this Condition
10.1(b) holding at least 25% in principal amount of the outstanding Notes;
(3) bankruptcy: the Issuer or any of the Issuer's Restricted Subsidiaries that is a Significant Subsidiary or any
group of Restricted Subsidiaries of the Issuer that, taken together, would constitute a Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:
a. commences a voluntary case;
b. consents to the entry of an order for relief against it in an involuntary case;
c. consents to the appointment of a Bankruptcy Custodian of it or for all or substantially all of its property;
d. makes a general assignment for the benefit of its creditors;
e. consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it;
f. takes any comparable action under any foreign laws relating to insolvency;
in each case other than in connection with a consolidation or merger, or conveyance or transfer of all of
substantially of its assets, permitted under 3.7;
(4) liquidation: a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
a. appoints a liquidator of the Issuer, any Restricted Subsidiary of the Issuer that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary or for all or substantially all of its (or their) property; or
b. orders the liquidation of the Issuer, any Restricted Subsidiary of the Issuer that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, and the order or decree remains unstayed and in effect for 60 days,
in each case other than in connection with a consolidation or merger, or conveyance or transfer of all of
substantially of its assets, permitted under 3.7;
(5) vitiation of Guarantee: any Significant Subsidiary or Guarantor claims in writing that it is not bound by the
16
Summary based upon the terms extracted from the Information Memorandum dated 25 February 2019 and Pricing Supplement dated 27 February 2019.
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 22 -
Guarantee, in either case other than in connection with a release permitted by Condition 3.2.
Acceleration provisions If an Event of Default occurs and is continuing under Condition 10.1(c) or Condition 10.1(d) then any Holder of Notes
may by notice to the Issuer and the Registrar declare that those Notes will become immediately due and payable upon
the date of such notice.
If an Event of Default occurs and is continuing other than under Condition 10.1(c) or Condition 10.1(d) then any Holder
or Holders of Notes representing 25% or more in principal amount of the Notes outstanding may by notice to the Issuer
and the Registrar declare that those Notes will become immediately due and payable upon the date of such notice.
Condition 10.1(c) = Bankruptcy (see above)
Condition 10.1(d) = Insolvency (see above)
Change of Control Investor put at 101% of Principal Amount plus accrued and unpaid interest applicable for:
(1) The sale of all or substantially all of the assets of the Issuer and its Subsidiaries taken as a whole to any
person; or
(2) Any transaction that results in a person becoming the beneficial owner of more than 50% of the voting stock of
the Issuer,
subject to exceptions for certain mergers and consolidations, intra-group transactions, transactions involving certain
shareholders (including Etihad Airways P.J.S.C., Singapore Airlines Limited, HNA Innovation Ventures (Hong Kong)
Co. Limited and the Virgin Group) or associated entities or other permitted entities, and certain other exceptions.
Guarantors and restricted subsidiaries Guarantors: Virgin Australia Airlines Holdings Pty Ltd; Virgin Australia Airlines Pty Ltd; VB Leaseco Pty Ltd; VAH
Newco No. 1 Pty Ltd; VAH Newco No. 2 Pty Ltd; A.C.N. 098 904 262 Pty Ltd; Virgin Australia Regional Airlines Pty Ltd;
Virgin Australia International Holdings Pty Ltd; Virgin Australia International Airlines Pty Ltd; Virgin Australia Airlines
(SE Asia) Pty Ltd; Tiger Airways Australia Pty Limited; and Tiger International Number 1 Pty Ltd.
As at the Preparation Date, Unrestricted Subsidiaries include Velocity Frequent Flyer Holdco Pty Ltd (Velocity Holdco),
together with each of its subsidiaries Velocity Frequent Flyer 1 Pty Ltd, Velocity Frequent Flyer 2 Pty Ltd, Velocity
Rewards Pty Ltd, as trustee of the Loyalty Trust, Velocity Frequent Flyer Pty Ltd, Torque Solutions (Australia) Pty Ltd,
the Loyalty Trust and any other subsidiary of Velocity Holdco (collectively referred to as the “Velocity Sub-Group”)17.
The Velocity Sub-Group owns the Group's loyalty program, Velocity, and does not own or rent any aircraft or have
other assets apart from the frequent flyer business. Although the Velocity Sub-Group does not hold a material portion
of the Group's consolidated total assets, it contributes a material portion of the Group's revenues and earnings. The
Notes will effectively be subordinated to the claims of the financiers and other creditors and minority interest holders in
17
See note 15 above.
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 23 -
recourse to these revenues and earnings.
In addition, at the Preparation Date, the following are also Unrestricted Subsidiaries: CPU Share Plans Pty Limited, as
trustee of the Key Employee Performance Plan Trust (through which shares of the Issuer are issued subject to vesting
under the Group's key employee performance plan), the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd
and Virgin Samoa Limited.
HKGLIB01/1087774/2138065.4 Hogan LovellsVirgin Australia – Strictly Private & Confidential - 24 -
US$425M 8.125% USD NOVEMBER 202418
Trustee The Bank of New York Mellon
Events of Default An Event of Default occurs with respect to the Notes if any of the following occurs:
(1) (failure to pay principal) default in any payment of the principal amount or premium, if any, on any of the
Notes when such amount becomes due and payable at Stated Maturity, upon acceleration, redemption or
otherwise;
(2) (failure to pay interest) failure to pay interest on the Notes when such interest becomes due and payable and
such failure continues for a period of 30 days;
(3) (breach of covenant) failure by the Company or any of its Restricted Subsidiaries to comply with any other
covenants or agreements applicable to the Notes and such failure continues for 60 days after the notice
specified below;
(4) (invalidity of Guarantee) except as permitted by the Indenture, a Note Guarantee of a Significant Subsidiary
is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and
effect, or a Guarantor denies or disaffirms in writing its obligations under its Note Guarantee; or
(5) (insolvency) certain events of bankruptcy, insolvency or reorganization described in the Indenture with respect
to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of its
Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary (other than in connection
with a consolidation or merger of, or conveyance or transfer of all or substantially all of the assets of, a
Restricted Subsidiary permitted under the covenant described under the caption “—Merger and Sales of
Assets” at such time as such Restricted Subsidiary is solvent).
Acceleration provisions A Default under clause (3) above will not constitute an Event of Default until a Responsible Officer of the Trustee with
actual knowledge of such Default notifies the Company, or the holders of at least 25% in principal amount of the
outstanding Notes notify the Company and the Trustee, of the Default and the Company does not cure such Default
within 60 days after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization with respect to the Company or its Restricted Subsidiaries that are Significant Subsidiaries) occurs and
is continuing, the Trustee or the holders of at least 25% in principal amount of the Notes then outstanding, by written
18
Summary based upon the terms extracted from the Offering Circular dated 14 October 2019 (subject to Completion)
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