The usual private equity playbook is to strip assets, load up the company with debt, and let it plummet into the ground, which is why Bain has both the name and reputation of a Batman supervillain.
However, Virgin Australia already has on the order of 6 billion in debt and virtually no assets (pretty much their entire fleet is leased). It'll be interesting to see how Bain plan to extract their pound of flesh here, when pretty much the only feasible strategy is to build a viable competitor to Qantas.
> Bain has both the name and reputation of a Batman supervillain
And like said supervillains, this caricature is largely a fiction.
In an analysis of "European companies around their buyout event in the period 2000 - 2008," private equity was found to "select companies which are less financially distressed than comparable companies prior to the transaction and that the distress risks increase after the buyout" [1]. Critically, however, "the distress risk in private equity-backed companies does not exceed the distress risk in comparable companies three years after the buyout," and, "despite this risk increase, private equity-backed companies do not suffer from higher bankruptcy rates than the control group."
More broadly, an analysis of "17,171 worldwide leveraged buyout transactions that include every transaction with a financial sponsor in the CapitalIQ database announced between 1/1/1970 and 6/30/2007" found bankruptcy rates around 6% [2]. This isn't exceptionally high.
Large deals get press. They also have a habit of involving overextension. As a result, the average private equity story is about things going spectacularly wrong at scale.
Then maybe all they intend to do is to keep the company alive, somehow, at a minimum operating level, until such time as the Covid-19 situation is less of a concern, and then resell it to somebody else for a profit.
load up the company with debt, and let it plummet into the ground, which is why Bain has both the name and reputation of a Batman supervillain.
I agree, but I‘ve never understood who the creditors are in this scenario. Why would you lend to a company when you know the VCs are going to trash it?
Gate and landing slots are my best guess as to what their remaining assets are - but with the downturn in air travel and the fees to maintain them, they seem more like liabilities.
Maybe there’s a nice pile of customer data that’s worth a bob or two to the right buyer.
Perhaps some hitherto unforeseen competitive advantage in routes and flight paths? But even then, seems tough. If you thought middle seat on the last row of United was bad, can’t wait to see what this looks like when they’re done with it.
What makes you think creditors would keep helping Bain "load up [companies] with debt" if doing so yielded an intolerably high risk of default? It seems obvious that they'd run out of patsies, sooner or later.
Their assets are their name and the landing slots, plus a running airline. Landing slots have some intrinsic value. I expect to see a lot of airlines go bankrupt. We have too many for next year or two.
Why will Virgin be treated differently than Ansett? (I was pretty young when Ansett went bankrupt, but Virgin's reputation seems to have been "trying to be Ansett and make a duopoly again".)
Why would a country need two domestic airlines? To keep one alive makes sense as a strategic asset. But two? Can just make the market more friendly to foreign airlines if more competition is needed/wanted.
I hadn't considered what happens when a company goes into administration, but I am surprised that it's another private company that is assigned to administrating it. I had always assumed it was a department in the government that handled the process.
No, it's not really the kind of thing governments could do, as they can't really be independent; they're generally a major creditor (for unpaid taxes) along with all the others.
In Australia, independent administrator is appointed who is working on behalf of creditors. Government is usually another creditor so they are not exactly an independent party.
There's an Australian company called KordaMentha that specializes almost exclusively in bankruptcies. (Or, at least to us laymen, never makes the news for anything else.)
Providing administration/liquidation services is a big industry. They come in to protect the interests of creditors and can usually be replaced by a vote of the creditors.
This is a straight up political hit piece published in August 2012 a few months before the Presidential elections when Romney was a major party nominee.
"And the drama of this rhetorical high-wire act was ratcheted up even further when Romney chose his running mate, Rep. Paul Ryan of Wisconsin – like himself, a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who’d be honored to tell Oliver Twist there’s no more soup left. By selecting Ryan, Romney, the hard-charging, chameleonic champion of a disgraced-yet-defiant Wall Street, officially succeeded in moving the battle lines in the 2012 presidential race."
The rhetoric and the journalism are hard to separate in this article.
[+] [-] 9nGQluzmnq3M|5 years ago|reply
However, Virgin Australia already has on the order of 6 billion in debt and virtually no assets (pretty much their entire fleet is leased). It'll be interesting to see how Bain plan to extract their pound of flesh here, when pretty much the only feasible strategy is to build a viable competitor to Qantas.
[+] [-] JumpCrisscross|5 years ago|reply
And like said supervillains, this caricature is largely a fiction.
In an analysis of "European companies around their buyout event in the period 2000 - 2008," private equity was found to "select companies which are less financially distressed than comparable companies prior to the transaction and that the distress risks increase after the buyout" [1]. Critically, however, "the distress risk in private equity-backed companies does not exceed the distress risk in comparable companies three years after the buyout," and, "despite this risk increase, private equity-backed companies do not suffer from higher bankruptcy rates than the control group."
More broadly, an analysis of "17,171 worldwide leveraged buyout transactions that include every transaction with a financial sponsor in the CapitalIQ database announced between 1/1/1970 and 6/30/2007" found bankruptcy rates around 6% [2]. This isn't exceptionally high.
Large deals get press. They also have a habit of involving overextension. As a result, the average private equity story is about things going spectacularly wrong at scale.
[1] https://madoc.bib.uni-mannheim.de/31366/1/dp11076.pdf
[2] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 Table 2
[+] [-] incompatible|5 years ago|reply
[+] [-] goatinaboat|5 years ago|reply
I agree, but I‘ve never understood who the creditors are in this scenario. Why would you lend to a company when you know the VCs are going to trash it?
[+] [-] tonyedgecombe|5 years ago|reply
[+] [-] madaxe_again|5 years ago|reply
Maybe there’s a nice pile of customer data that’s worth a bob or two to the right buyer.
[+] [-] enahs-sf|5 years ago|reply
[+] [-] realtalk_sp|5 years ago|reply
[+] [-] NotSammyHagar|5 years ago|reply
[+] [-] bsenftner|5 years ago|reply
[+] [-] ferros|5 years ago|reply
Virgin is the second and only competitor to Australia’s main carrier QANTAS, and sole carrier for some routes.
The government will not let them fade away. Big money and concessions will be forthcoming.
[+] [-] gindely|5 years ago|reply
[+] [-] nojs|5 years ago|reply
[+] [-] maltelandwehr|5 years ago|reply
[+] [-] JoblessWonder|5 years ago|reply
[+] [-] ehnto|5 years ago|reply
[+] [-] tomhoward|5 years ago|reply
[+] [-] lubos|5 years ago|reply
[+] [-] 9nGQluzmnq3M|5 years ago|reply
https://kordamentha.com/restructuring
[+] [-] postingawayonhn|5 years ago|reply
[+] [-] bashtoni|5 years ago|reply
[+] [-] drocer88|5 years ago|reply
"And the drama of this rhetorical high-wire act was ratcheted up even further when Romney chose his running mate, Rep. Paul Ryan of Wisconsin – like himself, a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who’d be honored to tell Oliver Twist there’s no more soup left. By selecting Ryan, Romney, the hard-charging, chameleonic champion of a disgraced-yet-defiant Wall Street, officially succeeded in moving the battle lines in the 2012 presidential race."
The rhetoric and the journalism are hard to separate in this article.
[+] [-] rapsey|5 years ago|reply
[+] [-] etimberg|5 years ago|reply