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Deal or no-deal: Why the Virgin sale may yet slip off the runway


Bain Capital may be in the driver’s seat to snatch Virgin Australia but the bondholders could still kill off this deal.

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The deal announced on Friday answered a few questions but raised a lot more. It’s unlikely those will be answered anytime soon because the less the bondholders know the better it is for Bain.

Those questions relate to what commitments Bain has given the Queensland Government for the $2oo million the Treasurer Cameron Dick has promised as part of the deal for the company to stay in Queensland.

It’s understood that it’s a complex deal between Bain and the Queensland Government and involves Virgin Mk2 meeting certain hurdles before it gets the funds.

Key conditions will have to be met before the $200 million offered by the Government is handed over. The funds are understood to be a mix of equity and incentives. There are apparently no tax holidays involved.

The deal is important for the Government in the run-up to the election. It would not help its chances if the bondholders blocked it.

The regional routes Virgin Mk2 will maintain are a key. The Government is likely to have made the regional routes an issue but Bain would have a lot of concerns about the less profitable ones. Which ones will be scrapped or reduced, if any, has  important political implications.

The bondholders, who are owed about $2 billion from the collapse, include about 30 corporates but also thousands of retail investors, many based in Queensland, who came in last year when Virgin’s Paul Scurrah raised the money to grab back full ownership of the Velocity frequent flyers business.

Those bondholders, which include Singapore’s Broad Peak, have a few of the answers to the many questions.

They could still veto the Bain deal at a creditors meeting in August and put their own to a vote. But they are also not the only player in the game. The unions, chiefly the Transport Workers Union, have a few cards in this game as well.

The unions have won a commitment from Bain about jobs and entitlements, which is key because there will be job losses, but how many is not known.

We do know that Virgin announced 750 job losses from its Brisbane headquarters last year when it announced a $350 million loss, but whether those losses will mean others will be saved is up in the air.

The other option for the bondholders is to start dealing with Bain in the hope of getting something better than the next-to-nothing they are likely to get.

This deal still has a long way to go.



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