Hawaiian Air’s 2-year bonds stun with 18% gain on news of Alaska Air takeover

It’s the latest example of bonds showing equity-like returns, albeit it’s unusual to see a move that big in a single day.

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Hawaiian Air has a total of $1.6 billion of long-term debt, according to FactSet data, with $1.5 billion of that in the form of bonds.

As the following chart shows, there has been net selling of the bond on Monday, most likely as portfolio managers took profit on the strong gains.

Alaska announced late Sunday that it’s acquiring the smaller regional carrier for $18 a share in cash, or 270% above its closing price on Friday at $4.86.

Alaska will take on about $900 million in Hawaiian’s net debt, for a total equity value of roughly $1 billion.

Alaska said the deal will grow the country’s fifth-largest airline to a combined fleet of 365 airplanes with 138 destination cities, with a combined 54.7 million annual passengers. The airline said Honolulu will become a key hub, with expanded service between Hawaii and the mainland U.S., and create new connections for flights to and from Asia.

Both brands will be retained, with the combined company’s headquarters based in Seattle. Alaska said the two airlines share complementary domestic, international and cargo networks.

Alaska
ALK,
-15.05%
said it would maintain a strong presence in Hawaii, including expanding union-represented jobs and local investments.

Hawaiian’s stock
HA,
+186.73%
is up 35% in the year to date, while the S&P 500
SPX
has gained 19%.