Virgin Australia’s restructuring plan to raise fresh equity and downsize its fleet and workforce

Virgin Australia is seeking an equity infusion of $852m and looking to cut its fleet and jobs as part of a major corporate restructuring program.

The capital raising has so far been supported by key shareholders Singapore Airlines, Air New Zealand and Chinese companies HNA Innovation and the Nashan Group, although 24% shareholder Etihad Airways has yet to commit any additional capital.

The group will also cut its smaller fleet of ATR turboprop aircrafts and decommission all of its E190 aircraft from its fleet over the next three years in an attempt to assist the group in simplifying its business and increasing its productivity.

Virgin also announced it would undertake a new efficiency drive aimed at cutting up to $250m in discretionary expenses, as well as flagging impairment charges of between $150 to $200m through to 2019.

Virgin Australia’s chief executive John Borghetti said there was no target for job losses in the restructure, as the focus was a realignment of existing jobs.

The $852m capital raising will be a fully underwritten on a 1 for 1 non-renounceable pro-rata offer. The raising along with an earlier $159m placement to HNA will pump up Virgin’s balance sheet with $1.01bn of fresh equity.

The new shares will be offered to existing shareholders at $0.21 per share, a 28% discount to its previous day’s closing price of $0.26 a share.

The money raised would be utilized towards repaying a $425m unsecured loan made by its airline shareholders Air New Zealand, Etihad Airways, Singapore Airways and the Virgin Group. The balance of the raising will be used to pay down the existing $3bn debt on Virgin’s books.

The cost-cutting and efficiency drive aims to boost free cash flow by $300 million dollar a year by 2019.


South Korea’s KRW 11tn fund to aid its ailing shipping industry

The Government of South Korea plans to create a KRW 11tn ($9.5bn) fund to support restructuring of the nation’s shipping and shipbuilding industries. The move comes in line with the central bank’s decision to lower benchmark borrowing rates as part of pulling the nation’s economy out of its slump.

The government aims to start operating the fund from 1 July 2016 until the end of 2017.

According to South Korea’s Finance Minister Yoo Il Ho, the fund would buy hybrid bonds issued by state-run banks.

Separately, the finance ministry plans to inject KRW 1tn of capital into the Export-Import Bank of Korea by September 2016 to ensure Kexim’s capital ratio doesn’t fall by too much.

The government currently estimates that these lenders would require about KRW 5 – 8tn of capital, assuming that Korea Development Bank and Kexim meet BIS ratios of 13% and 10.5%, respectively. KDB’s ratio currently was at 14.6% while Kexim’s was 9.9%.

Source: Bloomberg

South Korea’s Big Three outline restructuring plans

According to sources, South Korea-based Samsung Heavy Industries and Hyundai Heavy Industries received lender approval on their respective restructuring plans.

Apart from headcount reduction, Hyundai Heavy intends to sell real estate, stock, holdings and non-core businesses for balance sheet improvements totaling to $3bn.

Samsung Heavy Industries’ creditor group, led by Korea Development Bank, has provisionally approved a $1.25bn restructuring plan for the firm. SHI’s plan reportedly includes measures similar to HHI’s; although details were not available.

Daewoo Shipbuilding and Marine Engineering, have announced plans to trim wages by 20% and lay off executives. It has announced workforce reductions of 2,300 employees by 2019.

Daewoo also intends to sell its Seoul headquarters building to raise funds.

The “Big Three” reported combined net losses of $4.9bn in 2015, negatively impacted by a marked decline in shipbuilding orders in offshore, bulk and container shipping, and the yards secured only a handful of orders between them in the first months of 2016.

Separately, South Korea’s government is already discussing ways to shore up state-backed creditor banks like KDB and KEXIM in anticipation of the yards’ future needs for large-scale assistance.

Source: The Maritime Executive

Update: Pacific Exploration’s restructuring plan

Key takeaways of the updates on Pacific Exploration’s restructuring plan:

  • $500m debtor-in-possession financing to be provided as part of restructuring transaction
  • Gained court approval of consensual resolution with IFC of stay of extension of proceedings
  • Company would be able to continue paying all of suppliers, trade partners and contractors of subsidiaries across jurisdictions
  • Restructuring transaction aims to reduce debt and improve its liquidity
  • The superior court of Ontario approved an extension of stay of proceedings until 26 August 2016

Source: Reuters


Hyundai Merchant Marine’s creditors agree to $570m debt-for-equity swap

Creditors of South Korean container-freight logistics provider Hyundai Merchant agreed to a debt-to-equity swap involving the company’s debt of KRW 680bn ($570m), according to lead creditor Korea Development Bank.

The agreement is contingent on conditions including Hyundai Merchant Marine joining an alliance involving major shipping firms.

Source: Reuters

South Korea’s shipbuilders outline restructuring plans

South Korea’s top 3 shipbuilders, Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries, have come up with their second stage of restructuring plans to their creditors, worth some $5bn, collectively.

The plans consist of a combination of company restructuring, selling of assets and reduction of wages.

Shipbuilder Daewoo is looking to divest its defense industry unit, which produces military ships and submarines, in order to free up much needed capital.

Daewoo is also said to be looking to offload certain of its properties, including its office building in Seoul, appraised at an estimated value of $150m.

Daewoo, as well as Samsung, are also looking to sell their floating docks.
But sales could be difficult, with the current global ship-building industry in recession and demand low.

Hyundai has seen some 8,000 employees leave the company through regular and voluntary resignations since 2015, but they are encouraging more to opt for early retirement packages in order to make further cuts to the wage bill.

Daewoo and Samsung are also looking to reduce staff by about a thousand each this year.

Source: Hellenic Shipping News

Connacher seeks court protection 1 year after restructuring

Canada-based oilsands producer Connacher Oil & Gas Ltd was seeking protection from creditors one year after emerging from bankruptcy.

The company has submitted to the Court of Queen’s Bench, a proposal to shield it under the Companies Creditor’s Arrangement Act whilst it restructures its business which includes part or outright sale of the company.

During the company’s previous restructuring in May 2015, creditors holding $1bn of the Connacher’s debt ended up owning the entire company in a debt-to-equity swap transaction.

The company cited depressed oil prices as one of the main reasons for filing for bankruptcy in 2016. That combined with the restricted output from its oilsands project at Fort McMurray negatively impacted the company.

The company was exploring restructuring options in March 2016 and had also missed an interest payment on $35m of its debt which it had raised post-restructuring.

Source: Winnipeg Free Press

Breitburn Energy files for bankruptcy

U.S.-based energy firm Breitburn Energy Partners LP filed for Ch-11 bankruptcy, on being negatively impacted by falling oil prices. The company filed for restructuring in the U.S. Bankruptcy Court in New York, with reported assets of $4.7bn and debts of $3.4bn as of 31 March 2016.

According to company CFO James Jackson, the decision to file for bankruptcy was made when persistent negotiations with lenders failed and an out-of-court restructuring agreement would have affected the company’s liquidity severely.

The company has lined up a $75m DIP financing facility, and is in talks with senior lenders to include an additional $75m, if certain conditions were met.

A talking point during Breitburn’s restructuring would include its hedging assets, contracts that cushion the company’s cash holdings against oil price volatility. The company estimates that proceeds of its hedging agreements could be up to $500m, which, outside bankruptcy, could be “a significant source of liquidity.”

However, some of the Breitburn’s senior lenders have objected to the distribution of proceeds arising from hedging arrangements during bankruptcy as they are counter-parties to it.

Source: WSJ

SandRidge Energy files for Ch-11 bankruptcy

Sandridge Energy Inc. filed for Ch-11 bankruptcy in the U.S. Bankruptcy Court of Houston on reaching a debt-to-equity swap agreement with creditors. The swap would give its existing creditors control of the re-organized company.

Sandridge, which is the latest victim of falling oil prices, intends to finance its operations without securing a bankruptcy or a DIP loan. The company intends to conduct business normally whilst undergoing restructuring and intends to pay its operating expenses associated with production activities, royalties and wages to its workers and also intends to pay all of its suppliers and vendors.

At the time of filing for bankruptcy, the company had assets of $7bn and debt of about $4bn.

SandRidge is advised by law firm Kirkland & Ellis LLP, which is handling the chapter 11 case, and Houlihan Lokey Inc. is the company’s financial adviser.

Source: WSJ

China’s Communist Party warns about debt

China’s leading Communist Party mouthpiece ‘People’s Daily’ interviewed an unnamed person who warned about the country’s rising non-performing loans and the risks associated with it.

The interview stated that the country should make deleveraging its top priority over short-term growth fueled through monetary easing policies.

The daily also made a reference to Premier Li Keqiang’s thought on banks swapping debt for equity to cut excess borrowing by Chinese firms. The daily stated that whilst bankruptcies were to avoided, “zombie” companies beyond salvage should be allowed to fail because debt-to-equity swaps would be costly and self-deceiving.

Separately, Fitch Ratings warned that China’s accumulation of debt and diminishing economic returns could spiral the nation into either a financial crisis or a Japanese-style growth slump. Further, a spike in mortgage lending meant that banks could be exposed to significant losses if property prices dropped sharply.

Brokerage firm CLSA also warned that actual NPA’s in China could be at least nine times higher than government’s quoted figures, suggesting potential losses of c.$1tn.

Source: Bloomberg