Hawaiian Electric Industries Inc. And Subs. Downgraded To 'BB-'; Placed On CreditWatch Negative On Higher Wildfire Risk
Hawaii has been devastated by the worst wildfires in its history, with nearly 100 fatalities, and about 2,200 structures damaged or destroyed.
Separately, class-action lawsuits have been filed against Hawaiian Electric Industries Inc. (HEI), and its subsidiaries, Hawaiian Electric Co. Inc. (HECO), Maui Electric Co. Ltd. (MECO), and Hawaii Electric Light Co. Inc. (HELCO), which has increased the risk of a material deterioration in HEI's credit quality, should the plaintiffs prevail.
As such, we downgraded HEI and all of its rated subsidiaries to 'BB-', and at the same time we placed these entities on CreditWatch with negative implications. We also lowered the short-term and commercial paper ratings to 'B'.
The CreditWatch placement with negative implications reflects the potential for additional downgrades of one or more notches within the coming months.
News Release from S&P Global Ratings, Aug 15, 2023
TORONTO (S&P Global Ratings) Aug. 15, 2023—S&P Global Ratings today took the above rating actions.
The Pacific Disaster Center and the Federal Emergency Management Agency (FEMA) reported that about 2,200 Hawaiian structures were destroyed because of the wildfires. Fatalities from these wildfires are estimated at nearly 100, representing the most devastating wildfires in Hawaii's history. The severity of these wildfires demonstrate higher wildfire risk for the company than previously contemplated. The wildfires destroyed a significant segment of HEI's customer base that will take many years to restore, and as such, we expect a long-term weakening in the company's profitability measures, despite the company's use of a revenue decoupling mechanism for normal sales volume variations. To incorporate these weaknesses, we revised our assessment of the company's business risk profile downward to satisfactory from strong.
Class-action lawsuits filed against the company could lead to a deterioration in credit quality. These class action lawsuits increase the uncertainty and risk for the company. Both the Pacific Disaster Center and FEMA have estimated that the cost for Hawaii to rebuild from these wildfires could approximate more than $5.5 billion, significantly greater than HEI's book equity of about $2.2 billion. While the full resolution of these lawsuits may take years, should the plaintiffs prevail, the company's financial measures would materially deteriorate. To incorporate this potential event risk associated with these litigations, we revised our financial policy modifier to negative from neutral and will continue to assess management's capacity and commitment to decrease these risks to a level consistent with its financial risk profile.
The CreditWatch placement with negative implications reflects the potential for additional downgrades of one or more notches within the coming months. This could occur if it is determined that the company contributed to the wildfires or the company loses consistent access to the capital markets. We will continue to closely monitor future developments, including management's strategic plan for restoring credit quality, and expect to resolve the CreditWatch placement pending further updates.
HEI is a Honolulu-based holding company for electric utility HECO (80% EBITDA) and its two subsidiaries, HELCO (Hawaiian Electric and Light Company) and MECO (Maui Electric Company), which provide integrated electricity operations to about 470,000 retail customers across Hawaii. HEI also invests in sustainable infrastructure in Hawaii through its nonregulated subsidiary Pacific Current LLC and provides banking and other financial services through American Savings Bank (ASB).
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Reuters: Hawaiian Electric shares plunge further as S&P downgrades utility to junk | Reuters
ABC: Hawaiian Electric shares plummet 40% after Maui wildfires lawsuit - ABC News (go.com)