Bain on Hook for $543 Million Break Fee If Virgin Deal Fails

(Bloomberg) -- Bain Capital has agreed to pay A$750 million ($543 million) should it fail to buy Virgin Australia Holdings Ltd., an unusually high break fee that helped win over the collapsed airline’s administrator.

The U.S. private equity firm made the pledge “to underpin its commitment to the transaction,” it said in a statement. Administrator Deloitte agreed to sell the struggling airline to Bain in June, though the deal’s terms weren’t made public.

While Deloitte hasn’t disclosed the potential fee, it told Virgin’s creditors last week that Bain had provided a “substantial financial guarantee to secure transaction certainty.”

Coronavirus flareups and second-round lockdowns have made the aviation market in Australia and the rest of the world even bleaker since Bain agreed to buy Virgin. The break fee is designed to lock in the buyout firm even as the airline’s prospects darken.

Virgin’s creditors are due to vote on Bain’s takeover on Sept. 4. The potential penalty is a “strong impetus” for the firm to complete the deal “irrespective of operational challenges caused by Covid-19,” Deloitte told creditors, without specifying the sum.

Bain’s guarantee also means all Virgin Australia employee entitlements will be paid even if the deal falls apart, Deloitte told creditors in its Aug. 14 circular. Those entitlements are worth A$450 million. A spokesman for Deloitte declined to comment.

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Bain said its guarantee, and A$125 million of interim funding for the airline, shows its “determination to secure the long-term future success of Virgin Australia.”

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