Virgin Orbit struggles to avoid bankruptcy as talks on the deal continue

Virgin Orbit is struggling to secure a financial lifeline and avoid bankruptcy, which could come as early as this week without a deal, CNBC has learned.

The rocket maker paused operations last week, furloughing most of the company, as CNBC first reported, while it looked for new investment or a potential acquisition.

Virgin Orbit CEO Dan Hart and other senior leadership held daily conversations with interested parties over the weekend, according to people familiar with the matter who wish to remain anonymous to discuss internal matters.

At an all-hands meeting last week, Hart told employees the company hoped to provide an update on the situation as early as Wednesday.

Meanwhile, top talent is already entering the labor market: many of Virgin Orbit’s approximately 750 employees are looking elsewhere for vacancies. That talent ranges from executives to senior and lead engineers to program managers who are actively seeking and finding new jobs, according to an analysis by CNBC.

While a door is left open to avoid bankruptcy, people close to the situation describe a sense of panic as the company struggles to close a deal. A potential buyer resisted a proposed sale price of nearly $200 million, one person told CNBC — a price just below the company’s market value as of Friday’s close.

At the same time, Virgin Orbit is bracing for a potential bankruptcy filing this week, one person said. Virgin Orbit hired a pair of firms – Alvarez & Marsal and Ducera Partners – to prepare restructuring plans in the event of insolvency, CNBC has learned. Sky News first reported that the firms had been hired.

A Virgin Orbit spokesperson declined to comment.

Shares of Virgin Orbit have continued to fall since the lull in operations, with shares falling to nearly 50 cents a share in Monday trading.

The company developed a system to send satellites into space that uses a modified 747 jet, which drops a rocket under the plane’s wing during flight. The final mission suffered a midflight failure and the missile was unable to reach orbit.

The company spun out of Richard Branson’s Virgin Galactic in 2017 and considers the billionaire the largest stakeholder, with a 75% stake. Mubadala, the Emirati sovereign wealth fund, has the second largest stake in Virgin Orbit at 18%.

But the company is struggling to maintain its greenhouse. It went public in December 2021 towards the end of the SPAC craze and failed to tap into the fundraising markets in the same way as its sister company Virgin Galactic, which built its cash reserves to more than $1 billion through equity and debt sales .

Virgin Orbit aimed to raise $483 million through its SPAC process, but due to significant redemptions, it raised less than half of that, bringing in $228 million in gross proceeds. The funds it did manage to raise came from Boeing and AE Industrial Partners, among others.

Virgin Orbit has been looking for a financial lifeline for several months now. Branson was unwilling to fund the company any further, public figures said, and instead shifted his strategy to saving value.

Since the fourth quarter, Virgin Orbit has raised $60 million in debt from the investment arm of Branson’s Virgin Group, putting it ahead of Virgin Orbit’s assets. Around the same time, Virgin Orbit hired Goldman Sachs and Bank of America to explore other financial options ranging from a minority stake to a full sale.

George Mattson, who sits on Virgin Orbit’s board of directors, has been heavily involved in the company’s sale process, people told CNBC. Mattson worked as a banker at Goldman Sachs for nearly two decades before co-founding the SPAC called NextGen, which floated Virgin Orbit at a valuation of $3.7 billion.

Virgin Orbit said in a filing Monday that it has approved a departure plan for top executives if they are fired “following a change in control” of the company. The plan includes Hart as well as Chief Strategy Officer Jim Simpson and Chief Operating Officer Tony Gingiss, and includes the payment of base salary and annual bonuses. In the event of termination, Hart would receive a cash severance payment equal to 200% of his base salary, which is $511,008 according to FactSet.