After months of uncertainty, billionaire Sir Richard Branson has all but seen off a threat that brought his Virgin business empire to its knees.
Following reports this week that Virgin Group has raised $250 million to prop up Virgin Atlantic, a company insider told Forbes that the “three and a half month slog” is finally delivering results. A formal confirmation of the restructuring is pencilled in for mid July.
The news marks what could be the beginning of the end for a torrid period for one of the U.K.’s best known billionaires. Since March, Branson has been forced onto the back-foot over an allegation in Parliament that he should use his net worth to bail out his businesses, and questions over his tax status and residency in the British Virgin Islands.
However, the mood has changed within the Virgin Group. Branson is on the verge of raising $1.3 billion to help secure his business empire after the arrival of the coronavirus pandemic—$500 million from Delta, $300 million debt funding from the Elliott Management group, and $500 million from selling shares of Virgin Galactic from May through June.
The FT reported on Wednesday that Virgin Group will provide $250 million in cash immediately to support the beleaguered Virgin Atlantic airline, alongside additional shareholder support of about $500 million that has also been committed mostly from Delta Airlines, which owns 49% of Virgin Atlantic. The $250 million represents half of the money raised through the sale of Virgin Galactic shares.
As a third part of Branson’s recovery plan, Virgin Atlantic is pushing on with the last leg of discussions with Paul Singer’s Elliott Management hedge fund, Centerbridge Partners, and Davidson Kempner Capital Management (hedge fund) as part of the process to raise an additional $300 million in debt funding, according to the FT. There are believed to be three different offers on the table, none of which involve a transfer of equity and are described to Forbes by a source with knowledge of the negotiations as being part of a “straight debt deal.”
With $500 million raised from the hastily arranged sale of Virgin Galactic shares, the larger Virgin group has the ability to secure the future of its main interests, namely Virgin Atlantic. Although funding has also been made available from the Galactic share sale for Virgin Orbit, Branson’s small satellite offering, viewed as having great potential by Branson but still very much in a growth and investment stage of its business lifecycle.
At the opposite end of its lifecycle, Virgin Australia airline, which plunged into administration in late April, could also see investment from Branson in the recapitialization and recovery of the Aussie fleet. The price of getting the beleaguered airline could cost Branson over $69 million (USD). Branson’s 10% stake in Virgin Australia has been wiped by the administration process but Virgin Group CEO Josh Bayliss made it clear it wasn’t over for Branson in Australia in late April he said that Virgin Group would work with the administrators, investors and government, “to ensure that Australia maintains two airlines."
After months of misery, things are finally looking up for Virgin. Following the coronavirus calamity, a number of pieces of the recovery jigsaw have fallen into place for Branson and his team.
Firstly, Virgin Galactic, Branson’s most liquid asset, saw a positive rise to its share price that had fallen to $9 in mid March from a high of $20 in February. In May the Galactic price had returned to over $17, making the $500 million share sale raise (slightly) less heartbreaking for the group.
Secondly, the private debt sale that has brought hedge funds like Elliott to the table is described as winning “extremely strong interest” over the last few months. There was a period at the peak of the pandemic when this was far from certain. The decision to bring in Houlihan Lokey, an investment bank charged by Virgin to find private funding after the U.K. government walked away from negotiations in April, looks increasingly likely to deliver a positive outcome.
Finally, on the plight of Virgin Atlantic's staff, representatives worked with the two main unions to reach an agreement quicker than expected. Although 3,000 staff will lose their jobs, the communication with staff has been “up front and consensual,” according to a source with knowledge of the negotiations. By comparison U.K. MPs recently labelled Virgin Atlantic’s great rival British Airways “a national disgrace,” labelling attempts to lay off 12,000 staff and put 30,000 employees on new contracts, “a calculated attempt to take advantage of the pandemic,” as reported by the Guardian.