Hawaiian Airlines backs $800mn bonds with loyalty scheme

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Hawaiian Airlines (HA, Honolulu) is planning to issue USD800 million in five-year bonds via two newly formed wholly-owned special purpose vehicles, Hawaiian Brand Intellectual Property and Hawaiian Miles Loyalty, it revealed in a statement on January 26. The issuers intend to lend the net proceeds from the offering of the senior secured notes, due in 2026, to Hawaiian Airlines “after depositing a portion of such proceeds in a reserve account,” the statement said. The debt offering would be used in part to pay off federal loans received under the United States’ CARES Act. It would be secured by company assets, namely the HawaiianMiles loyalty scheme and “substantially all” of Hawaiian’s other brand intellectual property. In a statement on the offering dated January 26, the rating agency Fitch assigned it a rating of B+/RR2, signifying risk factors such as “failure to return to cash break-even over the next 9-12 months” and “total liquidity falling below USD500 million.” “Fitch has reviewed appraisals of the collateral that indicate that the transaction is over-collateralised, which supports the rating uplift. Fitch also believes that the importance of the collateral to Hawaiian creates a high level of incentive for the company to continue servicing the debt even in a distress scenario,” the agency said. “However, we note that the value of the collateral is highly contingent upon Hawaiian continuing as a going concern. Fitch believes that this dynamic creates the possibility that Hawaiian could attempt to negotiate its obligations under this transaction in a bankruptcy scenario since the creditors cannot readily enforce their rights against the collateral without destroying the collateral’s value.” The US Treasury Department has provided Hawaiian Airlines with USD622 million in liquidity under the federal CARES Act framework, of which it drew USD45 million on September 25, 2020. The Hawaiian carrier revealed during a fourth-quarter and full-year earnings conference call on January 26 that it expects to restore capacity this summer to between 75% and 85% of pre-Covid levels, in part by adding new service to three mainland “gateway” cities. As it works to recover from a “devastating” USD511 million loss last year (it posted a USD163 million loss for the last three months of 2020 contrasting with a USD50 million profit for the same period the year before), Hawaiian Airlines now plans direct flights from Honolulu to Austin Bergstrom Int’l, Ontario, and Orlando Int’l, as well as a new link between Kahului and Long Beach, all set to begin in March and April. The airline claimed to have restored, during the fourth quarter, services to all of its pre-pandemic points on the mainland, plus routes from Honolulu to Osaka Kansai (1x weekly), Tokyo Haneda (1x weekly), and Seoul Incheon (3x weekly). The carrier currently operates 36 routes, according to the ch-aviation capacities module, all but five of which are within the United States.

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