Hawaiian Electric shares drop further as S&P downgrades utility to junk

NEW YORK, USA – Shares of Hawaiian Electric Industries plunged 31% on Tuesday, August 15, as S&P downgraded the utility to junk status and investors fretted over the company’s potential liabilities in the wake of the wildfires in Maui.

The stock is down 54% so far this week amid increasing scrutiny over whether the utility company’s equipment might have played any role in the deadly wildfires. It lost roughly $730 million in value on Tuesday, as the stock price hit its lowest level since 2009.

The S&P Global Ratings downgrade puts Hawaiian Electric at “BB-,” and the credit agency placed the company on watch for further downgrades, citing damage caused to the company’s customer base and class-action lawsuits filed against the company alleging it was responsible for the fires.

Hawaiian Electric did not respond to a request for comment on the downgrade. The cause of the wildfires, which have killed at least 99 people and destroyed the coastal Maui town of Lahaina, is under investigation.

“The severity of these wildfires demonstrate higher wildfire risk for the company than previously contemplated,” S&P wrote. “The wildfires destroyed a significant segment of [Hawaiian Electric’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.”

Proposed class-action lawsuits filed on Saturday, August 12, in state courts seek to represent Hawaii residents affected by the wildfires – the deadliest in more than 100 years, causing an estimated $5.5 billion in damage.

Lahaina residents in one of the lawsuits claimed Hawaiian Electric is responsible for the fires after failing to shut off power lines despite warnings from the National Weather Service that high winds could blow those lines down and spark fast-spreading wildfires.

“While the full resolution of these lawsuits may take years, should the plaintiffs prevail, the company’s financial measures would materially deteriorate,” S&P wrote.

Uncertainty over potential liabilities that Hawaiian Electric may incur as a result of the wildfires is driving the sell-off, said analysts, who said the situation is reminiscent of that of PG&E. The company filed for bankruptcy protection in 2019, and subsequently restructured, citing potential liabilities exceeding $30 billion stemming from California wildfires that were blamed on its equipment.

“Given investors’ previous experience with PG&E, it’s sell first and ask questions later,” said Andrew Bischof, a strategist with Morningstar in Chicago.

“It’s still very early to determine the cause of the fires and any potential liability. This is a project that is going to take weeks and months, and your typical utility investor does not want volatility from their holdings.”

Hawaiian Electric vice president Jim Kelly told CNN on Sunday, August 13, that the company does not comment on pending litigation and that the company was cooperating with the investigation into the cause of the fires. He added that Hawaiian Electric does not have a formal shut-off program and precautionary shut-offs have to be arranged with first responders, CNN reported.

The company has not responded to multiple requests from Reuters about the lawsuits.

Also on Tuesday, brokerage Guggenheim cut its price target on the company’s stock to $18 from $32. The stock closed at $14.79. Wells Fargo and Morningstar cut their price targets for Hawaiian Electric on Monday, August 14. – Rappler.com