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Virgin's bondholder will propose an alternative deal that will see them take ownership of the airline.Credit:Jono Searle

The two American private equity firms will submit their binding offers for Virgin on Monday and each want to relaunch a simplified and stripped-back version of the carrier after it collapsed in April with debts of $6.8 billion.

But Deloitte will be asked to compare their bids to a proposal put together by Sydney based advisory Faraday,which has rallied some of Virgin's bondholders and developed an alternative deal that it believes will deliver a betterreturn on the $2 billion they are owed.

With the airline up for sale in the middle of an unprecedented crisis in global aviation due to the COVID-19 pandemic,observers and even some bondholders have said they could receive as little as 10¢ in the dollar or nothing at all.

Faraday declined to comment. But sources close to the process,who spoke on the condition of anonymity because the dealings are confidential,said Faraday was expected to propose swapping bondholder debts for equity in a relaunched business. A recapitalisation could include bondholders putting more cash into the business.

Virgin could also remain listed on the ASX,the sources said,which would be one structure to manage the distribution of shares to thousands of new owners.

Faraday has brought in Rob Sherrard,who co-founded Virgin Australia 20 years ago (then called Virgin Blue),and lawyers from Corrs Chambers Westgarth to its 50-person team.

One bondholder,who declined to be named because he was not authorised to speak to the media,said on Sunday that while he did not have any details of Faraday's proposal,"anything would be better that what Cyrus or Bain will offer".

Steven Wright,a director at Morgans who is advising around 500 retail investors who bought Virgin bonds through the stockbroker as part of a $325 million issuance in November,said there had been “comments in the press downplaying or trying to prepare retail investors for something that is worse than what they really should be entitled to”. However he also did not know the details of Faraday’s proposal.

Faraday,lead by former Lazard and Goldman Sachs banker Lachlan Edwards and ex-Herbert Smith Freehills partner John Nestel,was only admitted to Virgin's dataroom two weeks ago to start assessing the business,whereas Cyrus and Bain have been working on their detailed bids since May.

Transport Workers Union national secretary Michael Kain said Virgin's employees wanted certainty about how the administration would proceed and a bondholder-led deal could disrupt that.

“Anything that injects uncertainty at this point in time is unhelpful,” he said. “We want see this process complete in the way the administrators envisaged,with full government support.”

Deloitte will choose a preferred bidder by the end of June and then present that to a vote of Virgin's 12,000 creditors in mid-August.

Virgin's secured lenders are owed $2.2 billion,its aircraft lessors are owed $1.8 billion and its workers $450 million in entitlements. The bondholders - made up of 30 major institutional investors and 6000 retail investors - rank behind those creditors.

Bain has been promoting its deep pockets,with a $25 billion pool of capital available to get Virgin back on its feet and survive any future shocks,like the COVID-19 pandemic which eventually pushed it into insolvency.

Cyrus meanwhile has been trumpeting its experience in the airline industry,having invested alongside Richard Branson's Virgin Group in Virgin America.

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