Four of the five opted out, sources said, while the fifth was a "maybe".

The four to opt out were Etihad Airways, Singapore Airlines, Nanshan Group and HNA Group, who together own 80 per cent of the company.

Not done yet: Richard Branson's Virgin Group is still considering what it can do for Virgin Australia. Attila Csaszar

The "maybe" was Richard Branson's Virgin Group, whose attachment to the Australian business goes beyond its 10 per cent stake.

Being strategic investors, each has bigger problems closer to home. Airlines across the world have had to ground planes in response to the COVID-19 outbreak and are fighting for survival.

They know they're holdings are set to be wiped out by the recapitalisation, but are not necessarily in a position to do anything about it.

Fresh faces welcome

So Virgin's search moves to potential new investors – and it is understood to be particularly keen on Australian investors, in what would be a dramatic overhaul of its share register.


It remains to be seen whether any investors will take the bait. The equity search is running at the same time as a debt restructuring, which would be expected to see the company's lenders take a big haircut on their investments.

It also comes as Virgin has gone to Canberra to seek its assistance. Virgin is seeking $1.4 billion in fresh funds, and asked the government to play a role in the mooted bailout.

The government piece is arguably the most material piece of information for any potential investors and has real implications for Virgin's restructure and the airline's future.

Should it all come together, Virgin may be able to avoid administration. If not, then it could become the next Arrium, and be auctioned off to the highest bidder and proceeds handed to creditors by order of seniority.

Equity holders are expected to be wiped out, whichever way the deal goes. The five strategic investors account for about 90 per cent of the share register.

Sources said Virgin's board has been meeting frequently to keep abreast of the many moving parts.


Debt haircut yet to be determined

Virgin shares are in a trading halt while the deal plays out. Morgan Stanley and UBS are managing the data room, while restructuring specialist Houlihan Lokey handles the debt side of the equation.

The company's lenders will be asked to take a haircut as part of the restructure, although it is not yet determined how much they will be asked to forgive.

While sources said the situation was fluid, the group's bondholders appear unlikely to get Virgin shares in compensation for their loss. Expectations are the bondholders, who are unsecured, could be wiped out in full if the company were to go into administration. Some of the bonds were only issued late last year.

Virgin had $4.8 billion in interest-bearing liabilities at December 31 and $900 million in unrestricted cash and short term investments. Its next debt maturity is a $US350 million ($546 million) bond due in October 2021.

The $4.8 billion interest-bearing liabilities included $1.8 billion in unsecured bonds, $1.6 billion lease liabilities, $1.2 billion aeronautic finance facilities and $221 million in bank loans. The aeronautic finance facilities and bank loans were secured, according to the company's interim financial report.

The unsecured bonds include the $325 million retail notes and $US425 million institutional notes issued to buy back full control of Velocity Frequent Flyer late last year.

It's a very different capital structure to Arrium, which was the last big bankruptcy in Australia. Arrium failed owing more than $4 billion and each of the big four Australian banks were towards the top of the list of creditors.