Virgin Group subsidiary Virgin Orbit seeks DIP-backed Chapter 11 refuge after disappointing 2021 SPAC

Legal Analysis 4 April

Virgin Group subsidiary Virgin Orbit seeks DIP-backed Chapter 11 refuge after disappointing 2021 SPAC

Virgin Orbit Holdings Inc (VORB) filed for Chapter 11 on 4 April with plans to sell its assets in the wake of a special purpose acquisition company (SPAC) transaction in 2021 that brought in far less in proceeds than anticipated.

VORB, which is majority owned by Richard Branson’s Virgin Group, enters bankruptcy backed by USD 71.1m in debtor-in-possession (DIP) financing from intermediate parent Virgin Investments Limited (VIL). More than half of that financing, USD 42.5m, is set to roll up prepetition notes. The company has not yet lined up a stalking horse bidder to back the auction process, but the DIP requires the debtor to secure court approval of its assets within 50 days of the petition date, or 24 May.

Judge Karen Owens of the US Bankruptcy Court for the District of Delaware has scheduled a first day hearing for 5 April at 1:30pm ET.

The company

Founded in 2017, Long Beach, California-based VORB provides small satellite launch services to commercial customers, US national security entities, and the National Aeronautics and Space Administration.

The company has a proprietary “liquid launch system” that uses a modified Boeing 747 called “Cosmic Girl” and a two-stage rocket, LauncherOne. VORB claims that its system reduces the weather-imposed limitations of vertical rockets. The company operates out of a 195,000 square foot manufacturing facility in Long Beach and has other facilities in Mojave, California.

Prior to March layoffs, the company had 770 employees but now has 100.

The debt

VORB has entered five series of convertible notes with VIL since November 2022, with the first two priced at 6% and the latter three at 12%. All mature 4 November 2023 and a total of USD 70.9m is currently outstanding.

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The company owes another USD 2m on 6% unsecured notes with a Yorkville Capital Management affiliate and owes USD 34m in unsecured trade debt, USD 41m in contractual purchase obligations, holds USD 25m in customer deposits, and owes USD 6m in other unsecured debt.

The descent

VORB announced its intention in July 2021 to complete a de-SPAC reverse merger transaction with NextGen Acquisition Corporation II and went public in December 2021. The company closed trading on NASDAQ at USD 0.19 on Monday (3 April).

The merger raised USD 228m in net proceeds, but the company realized just USD 67.8m in gross proceeds as 82% of NextGen’s public shareholders redeemed their stock in connection with the de-SPAC, according to the first day declaration of CEO Daniel Hart. With those disappointing results, the company brought on Goldman Sachs and BofA Securities to pursue a sale or capital raise but was unable to reach a deal. Over five months starting in November 2022, VORB would get a liquidity injection with the five series of unsecured notes from parent VIL.

The de-SPAC troubles were complicated by capital markets with higher interest rates, “heavy pricing pressure” from competitors, and operational inefficiencies, Hart said. VORB proceeded to bring on Latham & Watkins as restructuring counsel, Alvarez & Marsal as financial advisor, and Ducera Partners as investment banker to explore a capital raise but VORB was unable to reach a deal before running out of liquidity, leading it to file for Chapter 11.

The advisors

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