Hawaiian investors familiar
with distressed companies

Lawrence Hershfield, head of the company that has acquired a controlling stake in the parent of Hawaiian Airlines, said the market has it wrong about the stock of Hawaiian Holdings Inc.

Not only have the shares of Hawaiian Holdings been underpriced, but they've been "drastically undervalued," said Hershfield, chief executive officer of Ranch Capital LLC.

And he and his investment group have put $41.4 million on the line to prove it.

"We think getting involved is a pretty good opportunity," said Hershfield, who is leading a newly formed investors group in Hawaiian, called RC Aviation LLC, which is comprised of several hedge funds.

Hawaiian Holdings' stock, which traded as low as 30 cents following the airline's March 21, 2003, bankruptcy filing, has nearly doubled this year and risen more than 1,100 percent over the past 52 weeks. It closed yesterday at $5.70.

Hershfield said the Ranch Capital group, which purchased 10 million shares Monday from majority shareholder AIP LLC and controlling member John Adams, "collectively manages a lot of money" and has the means to file a credible reorganization plan for Hawaiian Airlines.

Ranch Capital also has voting control over 4 million shares of Hawaiian Holdings that it didn't buy from AIP, potentially giving the investors more control over Hawaiian if the parent company's stock isn't canceled in the bankruptcy.

Hershfield declined to talk about what may happen with Hawaiian Airlines trustee Joshua Gotbaum's $28 million lawsuit against Adams. Some sources have suggested that Adams, who was removed from office following an ill-timed $25 million stock tender offer in 2002, could have a stronger position in the lawsuit if the stock retains its value. Adams, who was the controlling member of AIP, severed all ties with Hawaiian's parent company and AIP following Monday's transaction.

Ranch Capital, which doesn't have any experience in the airline industry, has been involved in investing in distressed and bankrupt companies. It was formed in October 2002 by Hershfield and Randall Jenson.

Hershfield, who has an MBA from Stanford University, worked for 17 years for diversified holding company Leucadia National Corp., which invested a lot in bankrupt companies and similar sorts of distress situations. He managed one of the largest bankruptcies in U.S. history at Finova Group, which primarily financed the purchase of used aircraft.

Jenson, who has an MBA from Harvard University, worked at Leucadia for five years and has performed due diligence on distressed debt portfolios and consumer finance companies in the United States and Japan.

Hershfield, will be in Hawaii next week to meet with various interested parties in Hawaiian's Chapter 11 reorganization case, said his group wants to team up with Gotbaum and the airline's unsecured creditors' committee on a reorganization plan.

Gotbaum and the committee have a short list of four bidders from an initial field of 13 that are under consideration as partners in a joint reorganization plan. They have not identified those parties.

Vx Capital Partners, a San Francisco-based firm that invests in the aviation sector, had been on that list but decided to bow out to prepare its own reorganization plan for Hawaiian. The Carlyle Group, a private-equity firm that last month signed an agreement to buy local telephone company Verizon Hawaii and then sold ocean transportation shipper Horizon Lines, was invited as one of the initial 13 to replace Vx on that list, sources said. But the Carlyle Group declined the invitation and is now having discussions with Vx about teaming on a reorganization plan, sources said.

Four other groups, including Hawaiian Holdings, already have filed separate plans, although Ranch Capital will now file a new plan in place of Hawaiian Holdings.

Stephen Compagni Portis, a partner with Vx, said he doesn't think Ranch Capital's purchase of 35 percent of the company should give the new investors an upper hand in the reorganization.

"Buying a big block of equity doesn't give them any special ability to direct the resolution of the bankruptcy," Portis said.

Mo Garfinkle, an adviser for Hawaiian Holdings and an industry analyst, lauded the move by Ranch Capital.

"This group brings a high degree of restructuring and financial expertise to the table, access to capital, and they share a vision for Hawaiian that will be exciting for all the constituencies, especially the employees," Garfinkle said. "In short, John Adams is no longer an issue in the bankruptcy."


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