Tuesday 25 November 2014 by FIIG Research Legacy

Virgin Australia Holdings Limited – New DirectBond

Key points:

1.     Virgin Australia Holdings Limited (Virgin) 8.50% 15 November 2019 USD senior unsecured bond has been added to the DirectBond list.

2.     Virgin is Australia’s second largest airline group providing access to over 450 destinations worldwide.

3.     The new foreign currency DirectBond is available to wholesale investors only in parcels of USD10,000 and increments of USD1,000 thereafter. Company background

Virgin Australia Holdings Limited (‘Virgin’) is Australia’s second largest airline group providing access to over 450 destinations worldwide. Virgin carried 20 million passengers in FY14 and currently operates around 3,400 weekly scheduled flights to 46 destinations in Australia and 16 international destinations. Virgin is listed on the Australian Securities Exchange (ASX) and had a market capitalisation of $1.39bn as at 20 November 2014.

Virgin is supported by its four principal shareholders, the Virgin Group Limited (the “Virgin Group”), Air New Zealand, Etihad Airways and Singapore Airlines, which collectively own approximately 80% of the shares in Virgin with the remaining shares owned by public shareholders.  

Virgin is a full service carrier that competes in the “two player” domestic aviation market with Qantas. Virgin has a strong position in this market with 36% of the Australian domestic market share through its mainline services and Tigerair, its budget service as at June 2014. Virgin has been able to achieve a rapid penetration into the higher yielding and more stable corporate and government markets, with domestic revenue share from these markets increasing from 10% in FY10 to 25% for FY14.

Details of the bond

  • Senior unsecured USD dollar denominated bond issued by Virgin Australia Holding Limited
  • Fixed coupon of 8.5% with a maturity on 15 November 2019
  • Bonds have been initially assigned a credit rating of B- by S&P and B3 by Moody’s. Virgin’s corporate credit rating is B+/B2 with a stable outlook and the weaker credit rating of the bonds reflects their subordination to the secured aircraft financings Virgin has in place. These rating levels reflect Virgin’s high financial leverage. The airline intends to use the net proceeds from the bond issue to build additional US dollar liquidity coverage and to meet future US dollar financing obligations
  • The US dollar bonds are typical of the ‘covenant light’ structures seen in the US high yield bond market, and include covenants in relation to a change of control (where bondholders would have the right to require Virgin to repurchase the bonds at $101 plus accrued and unpaid interest), payment and dividend restrictions in certain circumstances, and debt incurrence covenants
  • Detailed below are the key (indicative) return and pricing details:

Source: FIIG Securities

Prices are accurate as at 25 November 2014 but subject to change

Benefits to investors

  • The Virgin Australia Holdings Limited 8.50% 15 November 2019 senior unsecured bond provides investors with an exposure to USD currency
  • A high coupon makes the bond attractive to investors looking for a high income in USD dollars.

To view the full research report on Virgin Australia Holdings Limited please click here.

Please speak to your FIIG representative if you are interested in the new DirectBond or would like further details.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities. Virgin Australia Holdings Limited bonds are only available to wholesale investors.