New York, August 13, 2018 -- Moody's Investors Service ("Moody's") upgraded
its ratings of Hawaiian Holdings, Inc. ("Hawaiian"):
Corporate Family (CFR) to Ba3 from B1 and Probability of Default to Ba3-PD
from B1-PD. Moody's also affirmed Hawaiian's
SGL-1 Speculative Grade Liquidity rating and upgraded the ratings
assigned to Hawaiian Airlines, Inc.'s Series 2013-1
Enhanced Equipment Trust Certificates (EETC): Class A to A3 from
Baa1 and Class B to Ba1 from Ba2. The outlook is stable.
RATINGS RATIONALE
The upgrade in ratings reflects the expectation that Hawaiian will sustain
its current strong credit metrics, which have benefited from the
reduction of funded debt by about $475 million through 2017 and
meaningful margin expansion that led to cumulative free cash flow of about
$600 million since 2014. Debt to EBITDA has ranged near
2x and Retained Cash Flow to Debt at or above 30% since 2016,
which provide some cushion at the Ba3 rating for potential competitive
and or cyclical pressures. Moody's expects Hawaiian to continue
the good operating performance of recent years, marked by operating
and EBITDA margins above 20% and 30%, respectively
and limit re-levering of the balance sheet. However,
there will be some margin compression in 2018 with sustained higher oil
prices. Nevertheless, the company's margins have been
and we expect will remain near the top of the 21 airlines Moody's
rates. The upgrade also reflects Moody's view that the execution
risk in the fleet plan is now manageable, with almost half of the
A321neos in service
Hawaiian's small size, niche network centered on traffic to
and from Hawaii, the competitive intensity of its markets,
including from new entrants, and potential cost pressures balance
the company's favorable credit metrics, supporting the Ba3
CFR.
The upgrade of the EETC ratings accompanies the upgrade of the CFR,
reflecting the reduction in the probability of default, the supportive
features of EETCs, including the 18 month liquidity facilities,
protections of Section 1110 of the US Bankruptcy Code, the cross-default
of the transaction's equipment notes and cross-collateralization
of sale proceeds and the cross-subordination provisions of the
inter-creditor agreement. Moody's estimates of the
current loans-to-value of each tranche of about 64%
and 86%, respectively, are higher than those that it
projected for mid-2018 when it first rated the transaction in 2013.
However, the current estimates are proximate to the original peak
LTVs. Additionally, Moody's believes the six A330-200s
that collateralize the transaction will remain important to the airline's
network over the transaction's remaining term through January 2026.
The aircraft represent half of the 12 owned A330-200s in the fleet
and their average age of about 4.5 years is just below the A330
fleet average of 5 years. The coupons of 3.9% and
4.95% are likely attractive relative to the company's
cost for its other A330s. Their younger age and attractive financing
cost make it more likely that the financing would be affirmed in a bankruptcy
scenario.
The Speculative Grade Liquidity rating of SGL-1 reflects very good
liquidity, with expectations that cash will remain above $450
million and the $225 million revolving credit facility will remain
fully available.
The ratings could be upgraded if credit metrics are sustained while the
fleet transition progresses. This would likely require the company
pay cash for the majority of the A321s still to deliver. EBITDA
margin sustained above 25%, FFO + Interest to Interest
holding above 6x, Retained Cash Flow to Debt above 25% and
Debt to EBITDA sustained below 3x could support a ratings upgrade.
Limiting share repurchases to below free cash flow would also support
upwards rating pressure. Deterioration of operating margins and
cash flows such that EBITDA margin approaches 20%, Debt to
EBITDA approaches 4x, FFO + Interest to Interest approaches
4x or Retained Cash Flow to Debt falls below 20% could lead to
a ratings downgrade.
Hawaiian Holdings, Inc., headquartered in Honolulu,
HI, is the holding company parent of Hawaiian Airlines, Inc.
("Hawaiian"). Hawaiian offers non-stop service
to Hawaii from 11 U.S. gateway cities, along with
service from Japan, South Korea, China, Australia,
New Zealand, American Samoa and Tahiti. Hawaiian also provides
approximately 180 jet flights daily between the Hawaiian Islands,
with a total of more than 250 daily flights system-wide.
The company reported revenue of $2.8 billion in the 12 months
to June 2018.
Upgrades:
..Issuer: Hawaiian Airlines, Inc.
....Senior Secured Enhanced Equipment Trust
due January 15, 2026, Upgraded to A3 from Baa1
....Senior Secured Enhanced Equipment Trust
due January 15, 2022, Upgraded to Ba1 from Ba2
..Issuer: Hawaiian Holdings, Inc.
.... Probability of Default Rating,
Upgraded to Ba3-PD from B1-PD
.... Corporate Family Rating, Upgraded
to Ba3 from B1
Affirmations:
..Issuer: Hawaiian Holdings, Inc.
.... Speculative Grade Liquidity Rating,
Affirmed SGL-1
Outlook Actions:
..Issuer: Hawaiian Airlines, Inc.
....Outlook, Remains Stable
..Issuer: Hawaiian Holdings, Inc.
....Outlook, Remains Stable
The methodologies used in these ratings were Enhanced Equipment Trust
and Equipment Trust Certificates published in July 2018, and Passenger
Airline Industry published in April 2018. Please see the Rating
Methodologies page on www.moodys.com for a copy of these
methodologies.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
