Richard Branson’s Virgin Atlantic filed for Chapter 15 bankruptcy protection in the US on Tuesday (US time) after telling a London court it was set to run out of cash next month without getting approval for a rescue financing.
The airline filed its petition in the Southern District of New York. Chapter 15 bankruptcy allows foreign companies with US assets to protect themselves against claims while they work on a turnaround plan.
Since January 1, Virgin’s reservations are down 89 per cent year-over-year and current demand for the second half of 2020 is at approximately 25 per cent of 2019 levels, according to court papers.
“The group and its business have been adversely affected by the ongoing COVID-19 pandemic, which has caused an unprecedented near-shutdown of the global passenger aviation industry,” according to the court papers. “Global aviation was one of the first industries to be impacted by the COVID-19 pandemic and is likely to be one of the last to fully recover.”
Earlier, it told a London court that it will run out of cash next month unless it secures approval for a £1.2 billion ($2.2 billion) rescue package announced in July.
Without the funds, available cash will drop to about 49 million pounds by late September, below the 75 million pounds specified in bondholder contracts. That would require the sale of Heathrow airport slots against which the bonds are secured, forcing the carrier to fold.
Virgin Atlantic said it obtained an order from the court to convene four creditor meetings on August 25 to vote on the restructuring as part of a process that will bind all debt classes to the rescue plan. The carrier said that creditors in three of the groups have agreed in advance to back it.
“With support already secured from the majority of stakeholders, it’s expected that the restructuring plan and recapitalisation will come into effect in September,” a spokeswoman said. “We remain confident in the plan.”
The restructuring must be approved at a hearing scheduled for September 2, after the creditor meetings, or will be placed into administration mid-month with any assets sold, David Allison, a lawyer for the company, told the court.
Virgin Atlantic unveiled the rescue plan on July 14 after the coronavirus crisis shut down flights and the carrier was told that its credit ratings disqualified it from support through a state-backed loans program.
Under the proposals, US hedge fund Davidson Kempner Capital Management will provide about £170 million in secured financing, while Branson himself will contribute £200 million after raising money from space venture Virgin Galactic.
The plan also includes £450 million of creditor deferrals and £400 million of payment delays or waivers from Branson’s Virgin Group and co-owner Delta Air Lines.
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