It means VA were raising cash through a bond raising and financing of owned aircraft.
We knew about the bond raising, but all thought this was directly linked to the buy-out of the remaining share in Velocity.
With VA's P&L showing the business being largely free cash flow neutral over the last couple of years, we now know that for VA to maintain their cash position they had to sell owned aircraft and use the remaining proceeds of the bond issue to shore up their balance sheet.
This suggests VA has been bleeding cash for a considerable period of time.
It also gives us a bit more light on the Velocity purchase.
With the purchase valuing Velocity at approximately $2 billion, VA could have used the Velocity asset to artificially inflate the value of Virgin Australia.
To put this into perspective, If Velocity is actually worth $2 billion, than QANTAS's frequent flyer program would be worth $6 billion (3x larger). Considering QANTAS had a market capitalisation just prior to the pandemic of just over $6 billion, it doesn't take much thinking to see VA probably overvalued Velocity. This was the type of accounting associated with the rise and fall of ENRON.
In essence, Virgin Australia could have been insolvent prior to the pandemic.
Being "insolvent" has a specific meaning: not being able to pay debts when they become due and owing. Using debt financing to pay debt could demonstrate poor financial management, but that does not make the company insolvent.
Unfortunately though I agree with your underlying premise. Virgin were in awful financial shape before COVID-19, worse than many of us realised, and could well have ended up in administration regardless. They were rapidly running out of things to mortgage as security for new debt, and we already know that they were issuing 'junk bonds' at 8% when the cash rate was 0.5%. The mountain of debt was untenible, COVID just brought the end about much quicker. Scurrah seemed to have a good plan to turn the company around, and they might well have been able to trade out the hole they'd dug themselves, but the more we see about the underlying business the less convinced I am that they would have been able to.
Insolvency relates to a combination of equity (assets: liabilities) and ability to pay debts when due.
If we go back twenty plus years, Fosters (as in beer) one of the market darlings of the ASX had negative equity (liabilities greater than assets). As the company produced substantial amounts of cash and there was never a question of them not being able to pay their bills, the majority of their earnings were returned to shareholders. Having negative equity was of little consequence.
When ENRON in the US failed 15 years ago, governments released new accounting standards requiring companies to impair asset values in the accounting period the loss was incurred. This is why airlines will often report forward losses on fuel hedges, even though some of the losses will be realised in future accounting periods.
If the valuation on the Velocity asset is found to be overvalued and asset impairments due to Corona virus should have been reported at the time the losses were incurred (i.e. the 3rd financial quarter), it could be argued as of the 30 March date, VA had negative equity.
If with look at Perth Airport as an indicator, the outstanding invoices of $16 million suggests VA could have already been in arrears with paying creditors as of the 30 March 2020.
The financing of owned aircraft on the 24 March 2020 suggests there could have been an almost immediate need for cash (to maintain solvency).
VA’s request for a government loan came on the 30 March 2020. When the government loan did not come through, VA almost immediately placed themselves into administration.
As such, it could be argued Virgin Australia was technically insolvent prior to 1st April.