SYDNEY — Virgin Australia bondholders lodged a last-ditch recapitalisation proposal for the struggling airline on Wednesday (June 24), seeking to recoup more of their investment and stop its sale to a US private equity firm.

The proposal, which would keep Australia's second largest airline a listed entity, came two days after Bain Capital and Cyrus Capital Partners made final and binding offers to administrator Deloitte.

"Our plan offers a sustainable capital structure underpinned by public ownership to provide certainty and support the strong operating plan for the airline," a spokesman for the bondholders said in an emailed statement.

The proposal involves a debt-to-equity swap among bondholders owed around AUD$2 billion (S$1.91 billion) plus a fresh capital injection of around AUD$1 billion, one person with knowledge of the proposal told Reuters.

Broad Peak, a Singapore hedge fund backed by Temasek, is involved in the bondholders' proposal, the person said.

The firm did not immediately respond to a request for comment.

The Australian Financial Review reported that Temasek’s involvement has sparked talk that the proposal may include a joint venture with Singapore Airlines. Both Temasek and Broad Peak declined comment when contacted by the Australian newspaper.

One of the airline's secured creditors, speaking on condition of anonymity, said: "The bondholders are in an interesting position, they are creditors and a deal can't be done without them."

The new proposal would allow bondholders to recoup around 70 cents on the dollar of their investment, the person said. A second source said that return was a future estimate based on share trading expectations.

The bondholder statement did not identify those taking part, saying only they included thousands of retail investors. FIIG Securities, Northern Trust Asset Management, Sargon CT and The Bank of New York Mellon are all on the creditors' committee.

Virgin, which competes with Qantas Airways in an effective domestic duopoly, entered voluntary administration in April owing nearly AUD$7 billion to creditors. The airline had struggled financially even before the coronavirus pandemic crushed travel demand.

The bondholder proposal would back the existing management team, honour full employee entitlements, customer travel credits and frequent flyer points, the two sources said. They were not authorised to speak on the record.

Deloitte declined to comment on the bondholder proposal. The administrator had said on Monday after receiving the Bain and Cyrus offers that it hoped to select a preferred bidder by June 30.

A meeting is scheduled for August to vote on a deal, which would need the approval of at least 50 per cent of creditors by both value and number. Employees rank as the largest creditors by number at around 9,000, followed by around 6,000 bondholders. REUTERS