HawaiianMiles Loyalty, Ltd. -- Moody's affirms Hawaiian Airlines' ratings; outlook to stable

Rating Action: Moody's affirms Hawaiian Airlines' ratings; outlook to stableGlobal Credit Research - 31 Jan 2022New York, January 31, 2022 -- Moody's Investors Service affirmed the B1 corporate family ("CFR") and B1-PD probability of default ratings of Hawaiian Holdings, Inc. ("Hawaiian"). Moody's also affirmed the Ba3 rating assigned to Hawaiian Airlines, Inc.'s ("Airlines") Series 2013-1 Class A enhanced equipment trust certificates and the Ba3 rating assigned to the $1.2 billion of senior secured notes due in January 2026 issued by HawaiianMiles Loyalty, Ltd. ("Notes"). The company's HawaiianMiles loyalty program and brand secure the Notes, which are also guaranteed by Hawaiian. The company's speculative grade liquidity rating is unchanged at SGL-1. The ratings outlook was changed to stable from negative."The ratings affirmations and stable outlook reflect Moody's expectation that earnings and operating cash flows will continue their recovery towards 2019 levels through 2023, as Hawaiian restores service on its international routes," said Moody's Lead Analyst, Jonathan Root. "Hawaiian's strong liquidity, with $1.7 billion of cash and about $200 million of net debt at the end of 2021 also support the ratings affirmation and stable outlook," said Root. Moody's projects free cash flow to range between negative $75 million and negative $175 million in 2022 because of headwinds the company will face, mainly as it awaits relaxation of the travel restrictions in place in its international destinations. Implicit in Moody's projections is that once opened, borders around the world will remain open for air travel.Affirmations:..Issuer: Hawaiian Holdings, Inc..... Corporate Family Rating, Affirmed B1.... Probability of Default Rating, Affirmed B1-PD..Issuer: Hawaiian Airlines, Inc.....Gtd. Senior Secured Enhanced Equipment Trust Ser. 2013-1 Class A due 2026, Affirmed Ba3..Issuer: HawaiianMiles Loyalty, Ltd.....Gtd. Senior Secured Regular Bond/Debenture, Affirmed Ba3 (LGD3)Outlook Actions:..Issuer: Hawaiian Airlines, Inc.....Outlook, Changed To Stable From Negative..Issuer: Hawaiian Holdings, Inc.....Outlook, Changed To Stable From Negative..Issuer: HawaiianMiles Loyalty, Ltd.....Outlook, Changed To Stable From NegativeRATINGS RATIONALEThe B1 corporate family rating reflects Hawaiian's competitive positions across its continental US to Hawaii; Japan, South Korea and a few countries in Oceania to Hawaii and inter-island route networks. The B1 rating also reflects the company's strong liquidity and Moody's expectations that there will be a meaningful recovery of passenger demand in the international operations as the respective governments lower travel restrictions. The B1 rating also reflects Moody's expectations that credit metrics will strengthen over the next 24 months, more so in 2023 than 2022. Moody's projects operating margin could reach 10% in 2023 and debt/EBITDA could fall meaningfully below 5x by the end of 2023, if travel restrictions subside in 2022.Hawaiian has a record of solid operating performance and a relatively conservative financial policy, demonstrated by debt/EBITDA sustained below 2.6x between 2016 and 2019. Moody's expects Hawaiian to prioritize the restoration of its historical balance sheet strength; however, the pace of demand recovery and the willingness to incur premiums to retire debt before maturity dates will dictate the timing. Premiums for the early redemption of the Notes may prove to be uneconomic. In this case, Moody's expects Hawaiian will hold significantly more cash than the about $600 million it held in 2019, helping to de-risk financial leverage based on gross debt while the Notes remain outstanding.LOYALTY FINANCINGThe Ba3 rating on the Notes reflects the essentiality of the Hawaiian Airlines' brand and related intellectual property for it to operate its business and the importance of its loyalty program to its day-to-day operations and cash flows. This is balanced by relatively low recovery prospects if the collateral ever needed to be monetized to pay off the Notes under an Airlines liquidation scenario. The Notes rating, one notch above the B1 corporate family rating, reflects Moody's assumption of a lower probability of default relative to that of the company's other senior secured debt obligations, which are unrated.EETCsThe Ba3 rating on the Series 2013-1 Class A EETC reflects Moody's estimate that there is no equity cushion for the transaction. There is $195 million outstanding on the obligation, which is secured by six Airbus A330-200 widebody aircraft, one 2013 and five 2014s. Moody's estimates the value of these models at about $30 and $32 million apiece, respectively. The pandemic exerted significantly more pressure on the values of A330-200s versus the larger A330-300 and other widebody aircraft models, given the sustained interruption of medium to long-haul international travel and the A33-200's higher per unit operating costs. Nonetheless, the A330-200 will remain important to Hawaiian's operations over the transaction's remaining term through January 15, 2026. The one notch uplift from the corporate family rating reflects the high probability that the EETC would be affirmed by the airline in the event of a bankruptcy.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe CFR could be downgraded if borders remained closed such that there is no recovery of services and passenger volumes in the company's International network, or if Moody's expects a material reduction in the company's liquidity. Expectations of debt-to-EBITDA being sustained above 5x beyond 2023 could also pressure the ratings. There will be no upwards pressure on the ratings until after a sustained material recovery of the company's international network. EBITDA margins approaching 20%, debt/EBITDA sustained below 4.5x and retained cash flow-to-debt approaching 15% while the company takes delivery of the 787s in upcoming years could support a ratings upgrade.Changes in the EETC ratings can result from any combination of changes in the underlying credit quality or ratings of the company, Moody's opinion of the importance of the aircraft collateral to the company's operations and/or its estimates of current and projected aircraft market values, which will affect estimates of loan-to-value. The principal methodology used in rating Hawaiian Holdings, Inc. and HawaiianMiles Loyalty, Ltd. was Passenger Airlines published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277191. The principal methodologies used in rating Hawaiian Airlines, Inc. were Passenger Airlines published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277191, and Enhanced Equipment Trust and Equipment Trust Certificates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125852. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. Headquartered in Honolulu, Hawaii, Hawaiian Holdings, Inc. is the holding company parent of Hawaiian Airlines, Inc., Hawaii's biggest and longest-serving airline. Hawaiian offers nonstop service to Hawaii from 16 US gateway cities, along with service from Japan, South Korea, Australia, American Samoa and Tahiti. Hawaiian also provides approximately 130 jet flights daily between the Hawaiian Islands. The company reported revenue of $1.6 billion in 2021, down from $2.8 billion in 2019.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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, CFA Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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