S&P Global Ratings has lowered its credit rating on Virgin Australia to CC from CCC, saying it expects the company’s unsecured debt providers will be forced to accept less value than they are owed as part of the company’s debt restructuring process.
“If unsecured debt providers are forced to accept less value for amounts owing under their debt facilities, it will constitute a default under our criteria,” S&P said.
But the ratings agency added it expected the company to emerge from the recapitalisation process and continue as Australia’s second-largest domestic airline.
Virgin filed for voluntary administration on Tuesday, struggling with a high level of debt amid a collapse in air travel during the coronavirus crisis.
It is being run by big four accounting firm Deloitte as its administrator.
Separately Moody’s said it was reviewing its Caa1 rating on Virgin for a possible downgrade.
“The key issue for existing creditors will be the haircut they are requested to take in a restructure, relative to the risk of putting the company into liquidation with uncertain recovery prospects,” Moodys said.
The ratings agency said the 133-aircraft airline had $3 billion in debt plus another $2.6 billion owed on operating leases on its books for a total debt load of $5.6 billion as of June 30, 2019.
The lack of substitutes for air travel in Australia and the duopoly domestic airline market support its business profile, as does its Velocity frequent flier business, Moodys said.