Hawaiian Electric outlook upgraded to positive at S&P on court ruling, asset sale

Investing.com -- S&P Global Ratings has revised the outlook for Hawaiian Electric Industries Inc (NYSE:HE). (HEI) and its subsidiaries to positive from negative. This revision follows a favorable decision by Hawaii’s Supreme Court on Feb. 10, 2025, and the successful sale of a 90.1% stake in American Savings Bank (ASB) in late 2024.

The court ruling pertained to insurance subrogation claims in the Maui wildfire tort litigation. The court decided that insurers cannot sue defendants for amounts exceeding the settlement agreed to by the plaintiffs and defendants, once the settlement is finalized. This decision is seen as supportive of the credit quality of HEI and its subsidiary Hawaiian Electric Co. Inc. (HECO).

In a separate development, HEI finalized the sale of a significant stake in its previously wholly owned subsidiary, ASB, to a group of independent investors in late 2024. This sale generated about $384 million in net proceeds, which HEI plans to use to repay holding company debt.

The positive outlooks reflect the increased likelihood that the global wildfire settlement will be finalized in its current form, potentially limiting the liabilities for HEI and its subsidiaries due to the 2023 Maui wildfires. The court’s ruling increases the likelihood that the global settlement will finalize in its current form, potentially capping HEI’s exposure related to the 2023 Maui wildfires at $1.99 billion.

HEI’s liquidity assessment has also been revised to adequate from less than adequate by S&P Global Ratings. This change reflects the recent ASB equity stake sale and the steps HEI has taken to improve its liquidity position, including raising approximately $558 million through its equity issuance in 2024. As of Dec. 31, 2024, HEI had a consolidated cash balance of about $750 million and around $492 million in restricted cash.

The final judicial approval for the finalized settlement is expected by the end of 2025. Near-term developments include legislative approval of the state’s contribution toward the settlement fund and an agreement between the plaintiffs and the insurance subrogation claims regarding the sharing of the settlement funds.

S&P Global Ratings could raise the ratings on HEI and its subsidiaries by one or more notches over the next 12 months if the finalization of the Maui wildfire settlement is consistent with expectations, a credible plan to finance the remaining settlement payments is confirmed, and the company’s regulatory construct remains supportive of credit quality.

However, the outlook could be revised to negative if unforeseen events cause the current settlement related to the 2023 Maui wildfires to unravel. Environmental factors, including risks from wildfires, tsunamis, volcanoes, and floods, are negative considerations in the credit rating analysis of HEI and its subsidiaries.

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