Virgin Atlantic Favors U.S. Hedge Fund for Rescue Cash

Virgin Atlantic Airways Ltd. is edging toward an up to 500 million-pound ($620 million) emergency financing package led by Davidson Kempner Capital Management as the U.K. airline firms up survival plans, people familiar with the matter said.

The U.S. hedge fund has emerged as the favored funding provider, ahead of an alliance of Elliott Management and U.K. 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 around 200 million pounds, one person said. A final decision hasn’t 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 spokesman for New York-based Davidson Kempner, which has more than $30 billion of assets under management, declined to comment. Elliott, Centerbridge and Virgin Atlantic also declined to comment.

Government Role

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 U.K. government will have in a rescue attempt.

Virgin Atlantic doesn’t 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 signaled that it’s willing to consider aiding airlines once private avenues have been exhausted. Branson’s residence in a Caribbean tax haven makes a bailout of the U.K.-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 U.K. Treasury declined to comment “on commercial or financial affairs of individual firms.”

Clock Ticking

Chief Executive Officer 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 $400 million to help his companies by selling shares of space venture Virgin Galactic Holdings Inc.

The private financing wouldn’t affect equity holdings in the company, with Branson retaining his 51% stake, one of the people said. Delta Air Lines Inc., 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 400 million pounds, the person said.

The Financial Times reported earlier on Branson’s contribution and the re-emergence of Centerbridge.

Virgin Atlantic Favors U.S. Hedge Fund for Rescue Cash

Discussions are also ongoing with creditors including service providers and aircraft lessors, according to the same person. The refinancing could help free up 250 million pounds 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 35 billion euros ($39 billion) 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.

©2020 Bloomberg L.P.

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