A bailout for Virgin Australia (VAH)?
Perhaps, but the news yesterday of a $425 million 12 month loan from its four major shareholders was a timely announcement and one appreciated by the minority shareholders who marked up the shares by more than 8% to 38 cents.
Rather than a bailout, it appears to be more a bridging loan to give Virgin more time to restructure its balance sheet and continue its cost-cutting attack mounted late last year.
The loan will be provided by Air New Zealand, Etihad Airways, Singapore Airlines and Virgin Group and comes as part of a broader review of Virgin’s capital structure.
The airline took out a $US125 million ($164 million) loan in the first half of the financial year amid a decline in its unrestricted cash balance.
It is the second time in almost three years the shareholders have stumped up a loan to help Virgin – the previous time was in mid 2013 when $90 million was lent.
Of yesterday’s loan Air New Zealand will contribute just over $131 million, proportionate to its holding in the airline. The four airlines together control 84% of Virgin’s shares..
VAH vs QAN 2Y – Virgin Australia raises $425m
Virgin chairman Elizabeth Bryan said in a statement yesterday the airline its transformation program over the past six years and was now looking to improve profitability and earnings growth.
“The board is focused on optimising the group’s balance sheet and capital structure to support the ongoing execution of its strategy and will lead a capital structure review,” she said in the statement.
“The group has secured loan facilities from its major shareholders that provide a flexible source of funding while the review is undertaken."
The review will include an assessment of the appropriate mix of debt and equity capital and operational initiatives to improve cash flow and profitability.
Virgin did not give any idea of the timing of the review and whether the $425 million would be used to repay high priced debt on the airline’s books.
The loan is not convertible to equity and is subordinated to Virgin’s existing debt and on arm’s length commercial terms (no ‘mates rates’).
Chief executive John Borghetti said in yesterday’s statement that Virgin was “well placed to deliver ongoing growth and choice to Australian travellers” after the transformation it had undergone over the few years.
