FIIG - The Fixed Income Experts

News and Education

Virgin Australia Holdings Limited – New DirectBond

by Ekaterina Skulskaya | Nov 25, 2014

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.

Copyright The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced or distributed to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and reserves its rights to prosecute for breaches of those rights.

Disclaimer Certain statements contained in the information may be statements of future expectations and other forward-looking statements. These statements involve subjective judgement and analysis and may be based on third party sources and are subject to significant known and unknown uncertainties, risks and contingencies outside the control of the company which may cause actual results to vary materially from those expressed or implied by these forward looking statements. Forward-looking statements contained in the information regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Opinions expressed are present opinions only and are subject to change without further notice.

No representation or warranty is given as to the accuracy or completeness of the information contained herein. There is no obligation to update, modify or amend the information or to otherwise notify the recipient if information, opinion, projection, forward-looking statement, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

FIIG shall not have any liability, contingent or otherwise, to any user of the information or to third parties, or any responsibility whatsoever, for the correctness, quality, accuracy, timeliness, pricing, reliability, performance or completeness of the information. In no event will FIIG be liable for any special, indirect, incidental or consequential damages which may be incurred or experienced on account of the user using information even if it has been advised of the possibility of such damages.

FIIG provides general financial product advice only. As a result, this document, and any information or advice, has been provided by FIIG without taking account of your objectives, financial situation and needs. Because of this, you should, before acting on any advice from FIIG, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If this document, or any advice, relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a product disclosure statement relating to the product and consider the statement before making any decision about whether to acquire the product. Neither FIIG, nor any of its directors, authorised representatives, employees, or agents, makes any representation or warranty as to the reliability, accuracy, or completeness, of this document or any advice. Nor do they accept any liability or responsibility arising in any way (including negligence) for errors in, or omissions from, this document or advice. Any reference to credit ratings of companies, entities or financial products must only be relied upon by a ‘wholesale client’ as that term is defined in section 761G of the Corporations Act 2001 (Cth). FIIG strongly recommends that you seek independent accounting, financial, taxation, and legal advice, tailored to your specific objectives, financial situation or needs, prior to making any investment decision. FIIG does not make a market in the securities or products that may be referred to in this document. A copy of FIIG’s current Financial Services Guide is available at

An investment in notes or corporate bonds should not be compared to a bank deposit. Notes and corporate bonds have a greater risk of loss of some or all of an investor’s capital when compared to bank deposits. Past performance of any product described on any communication from FIIG is not a reliable indication of future performance. Forecasts contained in this document are predictive in character and based on assumptions such as a 2.5% p.a. assumed rate of inflation, foreign exchange rates or forward interest rate curves generally available at the time and no reliance should be placed on the accuracy of any forecast information. The actual results may differ substantially from the forecasts and are subject to change without further notice. FIIG is not licensed to provide foreign exchange hedging or deal in foreign exchange contracts services. The information in this document is strictly confidential. If you are not the intended recipient of the information contained in this document, you may not disclose or use the information in any way. No liability is accepted for any unauthorised use of the information contained in this document. FIIG is the owner of the copyright material in this document unless otherwise specified.

The FIIG research analyst certifies that any views expressed in this document accurately reflect their views about the companies and financial products referred to in this document and that their remuneration is not directly or indirectly related to the views of the research analyst. This document is not available for distribution outside Australia and New Zealand and may not be passed on to any third party without the prior written consent of FIIG. FIIG, its directors and employees and related parties may have an interest in the company and any securities issued by the company and earn fees or revenue in relation to dealing in those securities.