US hedge fund Davidson Kempner eyes Virgin Atlantic deal

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(Sky News) – A prominent American hedge fund has emerged among a pack of suitors eyeing a deal to prop up Virgin Atlantic Airways as it races to secure the funds it needs to survive the COVID-19 crisis.

Sky News has learnt that New York-based Davidson Kempner Capital Management is one of the prospective investors which held talks with Virgin Atlantic bosses this week.

The airline, which is seeking more than £500m in debt and equity funding following a collapse in revenue, wants to stitch together a deal this month.

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Sources said that Davidson Kempner was on a list of financial investors in discussions with Virgin Atlantic which also includes Apollo Global Management, Cerberus Capital Management and Greybull Capital, the former owner of Monarch Airlines.

Davidson Kempner, which manages well over $30bn in assets, is among the hedge funds negotiating a financial restructuring of the US department store chain Neiman Marcus.

The carrier founded by Sir Richard Branson in 1984 has also been engaged in lengthy negotiations with the government about taxpayer support.

While those talks continue, the prospect of a Treasury loan to Virgin Atlantic appears remote.

Sir Richard is trying to sell roughly $400m of his stake in Virgin Galactic, his space tourism venture, in order to inject some of the proceeds into his flagship airline.

Last weekend, Sky News revealed that Virgin Atlantic had put Alvarez & Marsal on standby to handle a possible administration process, with a pre-pack insolvency among the potential outcomes from the refinancing process.

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The firm’s appointment does not mean that administration is inevitable, but reflects the legal obligation of Virgin Atlantic’s directors to prepare for such an outcome, according to aviation experts.

Such a procedure would be particularly complex in the airline industry, because an insolvency would automatically terminate Virgin Atlantic’s aircraft leasing and take-off and landing slot agreements.

Any pre-pack deal would wipe out the equity of existing shareholders – Sir Richard’s holding company and Delta Air Lines.

Virgin Atlantic chief executive Shai Weiss announced a cost-cutting plan last week that involves axing more than 3,000 jobs – about one-third of its workforce.

It was the latest brutal evidence of the extent to which the global aviation industry has been decimated by the COVID-19 pandemic.

The company’s plans include ending its 36-year tenure at Gatwick Airport, reducing the size of its fleet and putting its Boeing 747s into early retirement.

Houlihan Lokey, the investment ban, is co-ordinating the talks with potential investors in Virgin Atlantic.

The process has been further complicated by the emergence of government plans for a two-week quarantine requirement for anyone flying into the country.

Grant Shapps, the transport secretary, held further talks with airline bosses this week.

Virgin Atlantic is already anticipating that customer demand will be at least 40% lower during 2020, with only a gradual recovery next year.

Mr Weiss made a presentation this week to potential investors, with one saying he had provided “robust evidence of a credible turnaround plan”.

Last week, Willie Walsh, the outgoing chief executive of British Airways’ parent, International Airlines Group, dampened hopes that it would resume flying if the government introduced a 14-day quarantine requirement.

The Treasury has, to date, been lukewarm about the idea of committing taxpayers’ money to Virgin Atlantic, partly because of its ownership by billionaire Sir Richard and Delta Air Lines, a US carrier which has itself just been bailed out by Washington.

The company recently received a capital injection amounting to more than $100m from Sir Richard’s Virgin Group.

It has also furloughed thousands of staff and seen its top executives agree substantial pay cuts because of the COVID-19 outbreak.

Less than a handful of Virgin Atlantic’s planes have been flying since the UK lockdown began in March, when Peter Norris, Virgin Group’s chairman, urged Mr Johnson to establish an industry-wide support package that could cost in the region of £7.5bn.

Sir Richard recently made an impassioned defence of his group’s financial affairs, warning that the transatlantic airline he founded in the 1980s was likely to collapse without government support.

He has already seen Virgin Australia fall into a process called voluntary administration, putting thousands of jobs at risk.

Virgin Atlantic is seeking hundreds of millions of pounds in the form of a commercial loan, as well as a government guarantee on further sums owed to it by credit card companies.

The company said on Friday that it remained in talks with private investors and the government.

Davidson Kempner declined to comment.

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