Virgin Atlantic favours US hedge fund in £500m survival plans
London — Virgin Atlantic Airways is edging towards a nearly £500m emergency financing package led by US hedge fund Davidson Kempner Capital Management as the UK airline negotiates survival plans, people familiar with the matter said.
The US firm has emerged as the favoured funding provider, ahead of an alliance of Elliott Management and UK investment firm Greybull Capital, according to the people, who asked not to be named as talks are private.
Davidson Kempner would provide more than half the money, with Richard Branson, the airline’s 69-year-old founder and majority shareholder, committing to inject about £200m, one person said. A final decision has not been taken and Centerbridge Partners, which had dropped out earlier, has been back in touch and could seek to swing a deal with a late proposal, that person said.
A spokesperson for New York-based Davidson Kempner, which has more than $30bn of assets under management, declined to comment. Elliott, Centerbridge and Virgin Atlantic also declined to comment.
Virgin Atlantic would like to wrap up a funding agreement this week or next, according to one of the people. The plan would need to be signed off by the Virgin Group board, which is next due to meet on Friday.
It remains unclear what involvement, if any, the UK government will have in a rescue attempt.
Virgin Atlantic does not qualify for the standard loan guarantees offered to all companies that came into the coronavirus crisis with an investment-grade debt rating. Yet the government has signalled that it is willing to consider aiding airlines once private avenues have been exhausted.
Branson’s residence in a Caribbean tax haven makes a bailout of the UK-born billionaire politically sensitive.
The prospect of state aid has become more remote as Virgin pursues talks with private firms, though contacts with the government are being maintained, one of the people said. Another person said the government is still part of discussions, though any bailout would come with strings attached, most likely that debt-holders take a write-off against part of the sums that they’re owed.
The UK Treasury declined to comment “on commercial or financial affairs of individual firms.”
CEO Shai Weiss pitched his recovery strategy to a dozen potential supporters in May after the coronavirus crisis grounded flights and Britain pushed back against an initial bailout request. That led to interest from a number of parties, while Branson has raised more than $400m to help his companies by selling shares of space venture Virgin Galactic Holdings.
The private financing would not affect equity holdings in the company, with Branson retaining his 51% stake, one of the people said. Delta Air Lines, which owns 49%, would also make a significant contribution by delaying outstanding marketing fees and other dues, with Virgin Group also waiving some fees. Savings could total £400m, the person said.
The Financial Times reported earlier on Branson’s contribution and the re-emergence of Centerbridge.
Discussions are also ongoing with creditors including service providers and aircraft lessors, according to the same person. The refinancing could help free up £250m in credit-card payments, they said. Virgin originally asked the government to underwrite the receipts, withheld by settlement firms in case it went bust.
European airlines are tapping almost €35bn in state loans, guarantees and equity to help them survive the coronavirus crisis.
Britain has been more reluctant to splurge on aid than countries like France or Germany. Virgin’s long-haul focus has added to its peril, exposing it to markets that may take years to revive.
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