Hawaiian withstands Covid, begins to repair balance sheet, cut debt

By Devika Patel

Knoxville, Tenn., Oct. 27 – Hawaiian Holdings, Inc. has taken the first step towards repairing its balance sheet as the Covid-19 pandemic begins to subside.

The company is still navigating the choppy Covid waters but believes it has sufficient cash to sustain its needs, along with positive cash generation, so it is using some capital to reduce debt and has tendered for certificates to begin this process.

“The surge in Covid cases associated with the spread of the Delta variant has dampened our near-term financial performance,” president and chief executive officer Peter Ingram said on the company’s third quarter ended Sept. 30 earnings conference call on Tuesday.

“As much as we would all prefer to see a straight-line recovery, the environment continues to deliver twists and turns for us to navigate.

“While it's disappointing to see the full recovery of our business delayed by a few months, we are absolutely confident that the effects of these conditions are short term, and we are already seeing signs of a solid rebound in our domestic business at the same time as the necessary conditions for recovery of our international operations are falling into place.

“With that in mind, we are managing the business for the long term, preparing for an international rebound in the months ahead, focusing on the delivery of outstanding guest experience and moving forward with efforts to better position our balance sheet for the future,” Ingram said.

The company is certain of its future resilience, and it has begun a debt tender offer to demonstrate this.

“We’re also taking concrete steps to reduce our debt levels, most notably, by conducting a tender offer for the A and B tranches of our 2020 EETC issuances,” Ingram said.

“As our investors are aware, our focus through 2020 and into the early part of 2021 was bolstering our liquidity to manage through the Covid crisis.

“While Covid is still with us, we have a clearer line of sight today to long-term recovery, and the tender offer is an important first step towards restoring our balance sheet to a superior long-term position,” Ingram said.

The tender makes sense since the company has more cash than it needs right now and management wants to improve the balance sheet by reducing debt.

“The EETC tender is our first step towards strengthening our balance sheet,” executive vice president and chief financial officer Shannon Okinaka said.

“While our adjusted net debt continues to be lower than pre-pandemic levels, the negative carry of the excess cash weighs on our income statement.

“Now that the path to cash generation and profitability is clearer, we’re comfortable that our current cash balance exceeds our needs and the tender for our EETC notes provides an opportunity to reduce our debt.

“Although it is a relatively small portion of our total debt balance, lowering the balance of our highest interest-bearing EETC notes will provide valuable interest expense savings,” Okinaka said.

The tender will dramatically lower interest expense going forward.

“If we repurchased 50% of each of the 2020 EETC tranches, we will save $8 million in interest expense next year,” Okinaka noted.

The company achieved positive adjusted EBITDA for the first time since the beginning of the Covid-19 pandemic, with EBITDA of $83 million and adjusted EBITDA of $2.8 million.

Cash and cash equivalents were $714,597,000 as of Sept. 30, 2021, compared to $509,639,000 as of Dec. 31, 2020.

Long-term debt was $1,851,672,000 as of Sept. 30, 2021, compared to $1,004,548,000 as of Dec. 31, 2020. As of Sept. 30, the company had $2.2 billion in liquidity, including its undrawn $235 million revolving credit facility.

On Sept. 23, subsidiary Hawaiian Airlines, Inc. started a cash tender offer for any and all of two series of pass-through certificates and related consent solicitations.

The airline is offering to buy any and all of the 7 3/8% series 2020-1A pass-through certificates due 2027 (Cusips: 41983PAA7, U2468PAA0) and the 11¼% series 2020-1B pass-through certificates due 2025 (Cusips: 41983PAB5, U2468PAB8).

For both series, the company is offering a total consideration of $1,170 per $1,000 certificate. The consideration includes a $30 early tender premium if holders tender by the early deadline.

Accrued interest will also be paid to the relevant settlement date.

The company is also soliciting consents from holders of a majority of the outstanding pool balance of each series of certificates (voting as separate classes) to some proposed amendments and holders of a majority of the aggregate pool balance outstanding of both series of certificates (voting as a single class) to some proposed amendments that would, among other things, eliminate some covenants related to the equipment notes and certificates.

Tendering holders will be deemed to have given consent. Holders can also consent without tendering their certificates.

The early deadline and the withdrawal deadline were originally 5 p.m. ET on Oct. 6, but on Oct. 7, the company announced it was extending the early tender deadline to 5 p.m. ET on Oct. 14.

On Oct. 15, the companies again extended the early tender deadline to 11:59 p.m. ET on Oct. 21.

Then, on Oct. 19, Hawaiian and Hawaiian Airlines announced that they had increased the consideration of the offer.

As of Oct. 18, 13.2% of the aggregate pool balance of class A certificates and 21% of the aggregate pool balance of the class B certificates had been tendered for purchase.

For each $1,000 pool balance of certificates validly tendered and accepted for purchase the company said it would now be paying $1,200, increased from $1,170. The offer applies to all certificates that have been tendered and that will be tendered through the expiration time, which has been extended to 11:59 p.m. ET on Nov. 1 from the previous expiration time at 11:59 p.m. ET on Oct. 21.

Accrued interest will also be paid to the settlement date. The final settlement date is now Nov. 4, extended from Oct. 25.

Funding for the offers will come from cash on hand.

The company is based in Honolulu and is the parent company of Hawaiian Airlines.

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