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[Just filed. Developing story.] April 4, 2023 – Virgin Orbit Holdings Inc. and four affiliated debtors (Nasdaq: VORB; together “Virgin Orbit” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case 23-10405 (Judge TBD). The Debtors*, operators of "flexible and responsive space launch systems," are represented by Kara Hammond Coyle of Young Conaway Stargatt & Taylor, LLP. Further Board authorized appointments include: (i) Latham & Watkins LLP as general bankruptcy counsel, (ii) Alvarez & Marsal as restructuring advisor, (iii) Ducera as investment banker and financial advisors and (iv) Kroll as claims agent.
*The Debtors continue to be 74.8% owned/controlled by Sir Richard Branson (see "Prepetition Shareholders" below).
The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn (as of September 30, 2022, assets were at $243.0mn and liabilities at $153.5mn). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Arqit Ltd.($10.0mn trade claim/customer deposit), (ii) United States Space Force ($6.8mn customer deposit) and (iii) iQPS, Inc.($5.2mn customer deposit).
In a press release announcing the filing, the Debtors provide that they had "commenced a voluntary proceeding…to effectuate a sale of the business. With the support of Virgin Investments Limited in the form of debtor-in-possession ('DIP') financing, Virgin Orbit intends to use the Chapter 11 process to maximize value for its business and assets….This announcement follows the Company’s previous statement about reducing its workforce due to an inability to raise sufficient out-of-court capital to continue operating its business at the current run-rate."
Dan Hart, CEO of Virgin Orbit, commented: "While we have taken great efforts to address our financial position and secure additional financing, we ultimately must do what is best for the business. We believe that the cutting-edge launch technology that this team has created will have wide appeal to buyers as we continue in the process to sell the Company. At this stage, we believe that the Chapter 11 process represents the best path forward to identify and finalize an efficient and value-maximizing sale."
The Debtors' controlling shareholder Richard Branson, apparently unwilling (or unable) to continue funding his long-held space exploration dreams beyond providing the DIP financing necessary to see the Debtors through a sale process, did not comment.
Also conspicuously quiet (verbally, and on the Debtors' list of shareholders where he is noted as holding 238 shares…to Branson's 252 million) is Matthew Brown, whose family office was reportedly in talks to provide the Debtors with $200.0mn of financing.
On March 30, 2023, Virgin Orbit Holdings Inc. announced (8-K here) a workforce reduction of approximately 675 employees, constituting approximately 85% of the Company’s workforce, noting that the cutback was necessary “in order to reduce expenses in light of the Company's inability to secure meaningful funding.”
In explaining the massive (and fast…completed by April 3rd) cuts to his now former colleagues, CEO Dan Hart stated: “Unfortunately, we’ve not been able to secure the funding to provide a clear path for this Company."
Financing and Competition Issues
In a December 2021 SPAC merger, the Debtors, whose aspirations in the highly competitive and capital intensive satellite launch market were based on the ability of a modified Boeing 747 plane to launch small rockets (and their enclosed satellites) on short notice and from anywhere, raised $255.0mn less than expected. Spun off from Branson’s space tourism firm Virgin Galactic in 2017, that small, light-footed strategy seems to have failed as customers chose [Reuters] "larger launch rockets and more cost-effective shared rides to space on SpaceX’s Falcon 9 rocket." It did not help that the Debtors experienced a highly publicized launch failure (or "anomaly") on January 9, 2023 when an inexpensive fuel filter became dislodged. See strong NYT piece on background here.
The filing date press release notes: "To help fund the process and protect its operations, the Company has received a commitment from Virgin Investments Limited for $31.6 million in new money DIP financing. Upon approval from the Bankruptcy Court, the DIP financing is expected to provide Virgin Orbit with the necessary liquidity to continue operating as it furthers the marketing process commenced pre-petition to sell the Company and seek a value-maximizing transaction for the business and its assets." The DIP fianncing is to include a $42.5mn roll-up of amounts owed Virgin Investments Limited in respect of prepetition borrowings.
Events Leading to the Chapter 11 Filings
The Hart Declaration [Docket No. 14] provides: "In July 2021, the Company announced that it planned to go public through a merger with a special purpose acquisition company, called NextGen Acquisition Corporation II ('NextGen'). The merger resulted in the Company becoming a publicly traded company in December 2021 through a de-SPAC transaction (the 'de-SPAC'). While the Company raised approximately $228 million in net proceeds in connection with the de-
SPAC and related transactions, these proceeds were significantly less than the Company had anticipated. Indeed, over 82% of NextGen’s total public shares were redeemed in connection with the de-SPAC, and accordingly, the Debtors received only $67.8 million in gross proceeds from the de-SPAC, significantly less than the potential $382 million that the Debtors had expected….Since the de-SPAC, the Company has pursued a broad range of strategic transactions designed to address its continuing liquidity needs. In the beginning of 2022, the Company began working with Goldman Sachs & Co. LLC (“Goldman Sachs”) and BofA Securities, Inc. (“BofA”) to pursue a potential sale or, alternatively, to assist with a capital raise.
While, up until shortly before the Petition Date, the Company received responses from several parties potentially interested in participating in varying transactions, no transactions were consummated….Moreover, in January 2023 (during the marketing process), the Company suffered a launch failure, giving rise to negative publicity and further challenges in identifying a buyer or capital source."
Sir Richard Branson holds 74.8% of the Debtors via the following holding structure
- Debtor Virgin Orbit Holdings Inc. is 74.8% held by Virgin Investments Limited (“VIL”). VIL is wholly owned by Virgin Group Investments LLC, whose sole managing member is Corvina Holdings Limited, which is wholly owned by Virgin Group. Virgin Group is owned by Sir Richard Branson.
- Debtor Vieco USA, Inc. is 100% owned by Virgin Orbit Holdings.
- Debtor Virgin Orbit, LLC (“Virgin Orbit”) is 100% owned by Debtor Vieco USA, Inc.
- Debtor Virgin Orbit National Systems, LLC is 100% owned by Virgin Orbit.
- Debtor JACM Holdings, Inc. is 100% owned by Virgin Orbit.
About the Debtors
According to the Debtors: “Virgin Orbit Holdings, Inc (Nasdaq: VORB) operates one of the most flexible and responsive space launch systems ever built. Founded by Sir Richard Branson in 2017, the Company began commercial service in 2021, and has already delivered commercial, civil, national security, and international satellites into orbit. Virgin Orbit’s LauncherOne rockets are designed and manufactured in Long Beach, California, and are air-launched from a modified 747-400 carrier aircraft that allows Virgin Orbit Holdings, Inc to operate from locations all over the world in order to best serve each customer’s needs."
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