STAR-BULLETIN FILE
Hawaiian Airlines has posted operating profits every quarter since it filed for Chapter 11 reorganization on March 21.
Hedge fund acquires
5.1% stake in HawaiianThe S.F.-based company says
it has been buying stock for
investment purposes and it may
take action to protect its interests
A San Francisco-based hedge fund firm has quietly been acquiring shares of Hawaiian Holdings Inc.'s stock and now owns 5.1 percent of the company.
Lonestar Partners LP has spent nearly $2 million, including commissions, in purchasing more than 1.4 million of Hawaiian Holdings' 28.5 million outstanding shares, according to a filing yesterday with the Securities and Exchange Commission.
Jerome L. Simon, who has a background in distressed companies, is the manager and sole member of Lonestar Capital Management LLC, the investment adviser to the parent company.
Simon said in the filing that the shares were acquired for investment purposes and were not made for the purpose of acquiring control of the company. The filing also said Lonestar is studying its options and could take action to maximize the value of the shares.
In an unrelated federal Bankruptcy Court filing yesterday that an airline insider called "frivolous," Toks Inc., which claims to have recently relocated to Honolulu from Los Angeles, submitted a motion and application to acquire Hawaiian Holdings through an exchange tender offer for $1 billion in stock and assumption of all of Hawaiian Airlines' debt. The filing also said it would ask trustee Joshua Gotbaum to become chairman and chief executive of the airline, which would be renamed "Universal Sky."
In August, the SEC accused Ade Ogunjobi, founder, chairman and CEO of Toks, of civil fraud regarding a bid to raise $1 billion to $10 billion to acquire AOL Time Warner Inc., General Motors Corp. and other companies. Toks' Web site sought cash to mount tender offers for "at least 15 of the world's largest corporations," the SEC said.
Meanwhile, Lonestar, bolstered by its increased stake in Hawaiian Holdings, said in its SEC filing that its "interests, and those of other non-insider, minority shareholders of the company, may not be adequately represented and protected by the company or by the trustee (Gotbaum)."
Lonestar noted in the filing that Hawaiian Airlines' operating performance has been improving. In fact, the airline has posted seven straight quarters of operating profits and, excluding a one-time $15.7 million grant from the Transportation Security Administration, has an operating profit of $59.9 million for the first 10 months of this year.
The airline was placed in Chapter 11 reorganization bankruptcy on March 21 by Hawaiian Holdings, which has no other operating subsidiaries and is not in bankruptcy.
Lonestar said it was considering talking with other shareholders, Hawaiian Holdings management, the trustee and other constituents in the bankruptcy case in order to protect its interests. In the course of any such discussions, Lonestar said, "it may advocate a particular course of action."
Lonestar also said it may acquire additional shares in the future.
Hawaiian Airlines spokesman Keoni Wagner declined to comment on Lonestar's involvement and the Toks filing.
Lonestar, founded by Simon in the summer of 1995, specializes in special situations, distressed investing, energy, and the exploitation of leveraged capital structures and mispriced securities. Simon was out of his office yesterday and a person answering the phone there said the company had no comment and then hung up.
There was no direct mention in the filing of John Adams, Hawaiian Airlines' ousted chairman and CEO. However, the filing said there were no contracts, arrangements, understandings or relationships -- legal or otherwise -- with anyone involved with Hawaiian Holdings. Adams, ousted in May for alleged financial improprieties, is still the chairman and CEO of the holding company as well as the sole managing member of AIP LLC, Hawaiian Holdings' majority stockholder with 50.9 percent of the shares.
Richard Havel, the attorney for Adams and AIP, said he had "a couple very brief informational discussions with (Simon) some time ago" but that he didn't believe there was any connection between Simon and Adams.
Adams, who did not return a phone call, has a background in investing in distressed assets and led a group that put $20 million into the airline in 1996.
Lonestar's ownership came to light because of an SEC regulation that requires investors in at least 5 percent of a company to file a statement of ownership. Lonestar actually sold 328,700 shares from Oct. 6 to Oct. 27 in 11 separate transactions at prices ranging from $1.04 to $1.29. The firm then turned around and purchased 451,256 shares from Nov. 12 to Dec. 4 in eight separate transactions at prices ranging from $1.37 to $2.45.
The filing doesn't indicate if Simon has acquired or sold any additional shares since Dec. 4, but Hawaiian Holdings' stock jumped as much as 38.6 percent yesterday to $3.05 before closing up 25.5 percent at a 52-week high of $2.76. The shares, which traded as low as 29 cents intraday on June 13, are now up 35.3 percent this year.
Havel said Lonestar's accumulation of shares support the parent company's contention that the stock still offers value.
"I think the statement (Simon) issued reflected (Lonestar's) belief that there is significant value in the airline for shareholders and they hope to see it realized in the Chapter 11 case," Havel said.
Often times, companies coming out of bankruptcy cancel existing shares and issue new stock to debt holders, such as Hawaiian did in 1994 when it emerged from its last reorganization.
Gotbaum has brought up that example in the past and talked about issuing new shares, but has not definitively stated that all the stock held by Hawaiian's current shareholders will be canceled.
Still, insiders of Hawaiian Airlines expect Gotbaum to make a similar move this time around.
Havel, who acknowledged speaking to Simon previously, said he had no insight into Simon's interest in the company other than what was in the filing.
"He said he was a shareholder and asked for some information on the status of the case and I told him matters in the public record of the Chapter 11 case," Havel said. "He described himself as an existing shareholder and I talked to him on that basis."
In the meantime, Havel said Hawaiian Holdings is still considering all its options, which include filing a competing reorganization plan.
"We have tried to become a bit more active in the case by requesting documents with court permission," he said. "We're hopeful there's value in the stock and we're concerned with the time and the expense the trustee is incurring that could reduce or limit the value that shareholders might otherwise get in the case."
Andrew Schwarz, whose firm is the market specialist for Hawaiian Holdings on the American Stock Exchange, said Lonestar's accumulation of stock was undetected.
"When someone wants to take on a large position in a stock, he will never want to telegraph that information because other people will front-run it," said Schwarz, a partner with AGS Specialist Partners. "The fact that we didn't see concentrated buying is not unusual for an institution or individual who wants to take a large position."
Simon, who received an MBA from Stanford University in 1990 and a bachelor's degree in economics from Claremont McKenna College in 1982, has more than 10 years experience in the securities industry.
He worked for Drexel Burnham Lambert in Los Angeles in the restructuring advisory group and for the distressed securities desk in the summer of 1989.
Simon then worked for two Mill Valley, Calif.-based hedge funds, Paul D. Sonz Partners LP in 1991 and 1992, and Avdan Partners LP in 1993 and 1994. Simon worked as a consultant for Leucadia National Corp., a diversified holding company involved in banking, real estate and other areas, from November 1994 until March 1995.
Earlier, from 1986 to 1988, Simon was president of a single-asset hotel corporation that became a debtor-in-possession in a Chapter 11 bankruptcy proceeding. He also worked as an independent petroleum landman in 1984 and 1985.
