Ratings assigned to Hawaiian Airlines' Series 2013-1 EETCs, A-tranche at Ba1, B-tranche at B1
New York, May 14, 2013 -- Moody's Investors Service assigned ratings to Hawaiian Holdings,
Inc. ("HH"): Corporate Family of B3, Probability
of Default of B3-PD ("CFR" and "PDR", respectively) and Speculative
Grade Liquidity rating of SGL-3. The outlook is stable.
These are first time ratings being assigned to HH.
Hawaiian Airlines, Inc. ("Hawaiian"), the
airline operating company subsidiary of HH announced its first ever offering
of Enhanced Equipment Trust Certificates ("EETCs"),
the proceeds of which will finance six newly-manufactured Airbus
A330-200 aircraft to be delivered to Hawaiian between November
2013 and October 2014. Moody's assigned Ba1 and B1 ratings,
respectively, to the Class A and Class B Pass Through Certificates,
Series 2013-1 (the "Certificates") of the 2013-1 Pass Through
Trusts that Hawaiian will establish. The Trustees of the Pass Through
Trusts will purchase the equipment notes ("Notes") that Hawaiian
will issue using the proceeds of the Certificates. Interest and
principal payments made by Hawaiian on the Notes will fund the distributions
of interest and scheduled principal due on the Certificates. HH
will guarantee Hawaiian's performance under the Notes' indentures.
Assignments:
..Issuer: Hawaiian Airlines, Inc.
....Senior Secured Enhanced Equipment Trust,
A-Tranche, Assigned Ba1
....Senior Secured Enhanced Equipment Trust,
B-Tranche, Assigned B1
..Issuer: Hawaiian Holdings, Inc.
.... Corporate Family Rating, Assigned
B3
.... Probability of Default Rating,
Assigned B3-PD
.... Speculative Grade Liquidity Rating,
Assigned SGL-3
Outlook Actions:
..Issuer: Hawaiian Airlines, Inc. and
Hawaiian Holdings Inc, Assigned Stable
RATINGS RATIONALE
The ratings of the Certificates consider the credit quality of Hawaiian,
Moody's opinion of the collateral protection of the Notes, the applicability
of Section 1110 of Title 11 of the United States Code (the "Code") to
the Notes, the credit support provided by the liquidity facilities,
and the cross-default and cross-collateralization of the
Notes. The assigned ratings reflect Moody's opinion of the ability
of the Pass-Through Trustees to make timely payment of interest
and the ultimate payment of principal on the final scheduled regular distribution
dates of January 15, 2026 and January 15, 2022 for the A and
B certificates, respectively. The ratings also reflect the
importance of the A330-200 aircraft to Hawaiian's multi-year
strategy to modernize its fleet and significantly grow its international
network with a focus on connecting Hawaii to Asia and the South Pacific.
Amounts due under the respective Certificates will be subordinated to
any amounts due on the separate Class A and Class B Liquidity Facilities
("Liquidity Facility"). Natixis S.A., acting
through is New York Branch ((P)A2, stable) will provide the separate
liquidity facility for each of the Class A and Class B Certificates and
will also act as the Depositary, which holds the Certificate proceeds
pending the delivery of each aircraft in the transaction.
Moody's estimates the initial loan-to-value of the tranches
before inclusion of the claims of the liquidity provider at about 60%
and about 80%, respectively based on its estimates of market
values and after applying its LTV benefit for cross-collateralization.
The company had 12 A330s in its fleet at May 1, 2013 and will have
22 when the remaining ten aircraft in the order book deliver through 2015.
Seven Boeing B767-300ERs will remain in the fleet in 2015,
leaving the carrier with 29 operating wide-body aircraft at that
time. The six aircraft in this transaction will represent 27%
of the A330s and 20% of all wide-body aircraft in the fleet
in 2015. The company also has six Airbus A350XWB-800s on
order, scheduled to begin to deliver in 2017.
Any combination of future changes in the underlying credit quality or
ratings of Hawaiian, unexpected changes in Hawaiian's route
strategy that de-emphasizes long-haul service, or
unexpected material changes in the market value of the A330-200
could cause Moody's to change its ratings of the Certificates.
The B3 Corporate Family Rating considers the company's relatively
small size, its geographic concentration, the aggressive growth
strategy, and expected negative free cash flow over the next two
years and again when deliveries of the A350XWB and A321neo aircraft commence
in 2017. With $2 billion of annual revenue and a current
operating fleet of 47 aircraft, 18 of which are narrow-bodies
used in its inter-island service, Hawaiian is one of the
smaller U.S. airlines operating mainline aircraft.
The health of the company's financial performance and cash generation
rests on growing demand from leisure travelers, particularly from
Japan, Australia and the U.S. West Coast and from
rational capacity management by its competitors on the routes it serves,
each of which are beyond the company's control. Current credit
metrics such as Debt to EBITDA of about 5.6 times, EBIT to
Interest of about 1.8 times and an EBIT margin of about 9%
are reflective of the mid- to low-single B rating category.
Adequate liquidity supports the ratings assignment.
The SGL-3 Speculative Grade Liquidity Rating reflects Moody's
opinion that Hawaiian's liquidity is adequate. Moody's
anticipates that the company's unrestricted cash should remain above
16% of revenue over the next 18 months, even as it incurs
about $350 million of negative free cash flow because of the deliveries
of the A330s. A $75 million revolver, typically undrawn,
is modestly sized and matures in December 2014. Unencumbered assets
are modest. Ongoing access to the bank or debt capital markets
will be important to fund aircraft deliveries beyond 2013 without sacrificing
the current good cash cushion. Hawaiian disclosed in its 10-K
that it has either financing or sale-leaseback commitments for
four of the five A330's scheduled to deliver in 2013. The
financing of the fifth delivery in 2013 will be addressed by the Series
2013-1 EETC.
The stable outlook reflects Moody's belief that credit metrics are
likely to remain near or modestly weaker than current levels over the
next 12 to 24 months as earnings growth is not likely to be significant
enough in the near term to offset the effect of higher debt associated
with the deliveries of new aircraft. A positive rating action could
follow if the company demonstrates the ability to sustain its EBIT margin
above 9% and have Debt to EBITDA approach 5.0 times or lower
while it inducts the remaining ten A330s into its operations. Sustaining
EBIT to Interest above 1.5 times and Retained Cash Flow to Net
Debt above 11% could also positively pressure the rating.
A negative rating action could follow if operating margins and cash flows
deteriorate such that Debt to EBITDA is sustained above 7.0 times,
EBIT to Interest below 1.0 time or Retained Cash Flow to Net Debt
that approaches 7%.
The principal methodologies used in this rating were the Global Passenger
Airlines Industry Methodology published in May 2012 and the Enhanced Equipment
Trust and Equipment Trust Certificates Methodology published in December
2010. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
Hawaiian Holdings, Inc., headquartered in Honolulu,
HI, is the holding company parent of Hawaiian Airlines, Inc,
("Hawaiian"). Hawaiian is Hawaii's biggest and longest-serving
airline, as well as the largest provider of passenger air service
from its primary visitor markets on the U.S. West Coast.
According to Hawaiian, it is the eleventh largest domestic airline
in the United States based on revenue passenger miles. The airline
operates about 215 flights per day, spanning services connecting
the U.S., mainly the west coast, Asia,
Australia and the South Pacific with Hawaii and flights connecting the
four major islands of Hawaii.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jonathan Root
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's rates Hawaiian Holdings, CFR at B3, outlook stable
