Investing.com -- Moody’s Ratings has upgraded the credit ratings of Hawaiian Electric Industries (NYSE: HE ), Inc. (HEI) and its subsidiary Hawaiian Electric Company, Inc. (HECO), affecting approximately $1.2 billion of debt securities. The upgrades were announced on May 28, 2025, in New York. The corporate family rating (CFR) of HEI was raised to Ba3 from B1, and the probability of default rating (PDR) was improved to B1-PD from B2-PD. The speculative grade liquidity rating (SGL) of the company was also upgraded to SGL-2 from SGL-3.
HECO’s issuer rating was upgraded to Ba2 from Ba3, and its preferred stock rating to B2 from B3. The commercial paper ratings of both HEI and HECO remain Not Prime (NP). The outlook for both companies is positive.
The rating upgrades are a reflection of the significant progress made by HEI in resolving the litigation from the August 2023 Lahaina wildfire, which has consequently lowered its credit risk. Toby Shea, VP – Sr. Credit Officer, anticipates that the Maui Circuit court will approve the proposed settlement agreement between the relevant parties in the first quarter of 2026. The agreement would fix the company’s gross liability at $2 billion, paving the way for further improvement of its credit profile.
HEI and HECO have been exposed to massive litigation from the Lahaina wildfire for the last two years. The companies have made substantial progress in resolving the claims filed by wildfire victims, with the help of state and local stakeholders, most notably Governor Josh Green.
The proposed settlement agreement, if executed successfully, will see all key defendants in the wildfire litigation, including the State of Hawaii, provide around $4 billion in compensation to affected parties. HEI and HECO’s contribution is estimated to be just under $2 billion. The Hawaii Supreme Court cleared a major legal hurdle in February 2025 by ruling that insurers are barred from pursuing subrogation claims against HEI, HECO, and other defendants if their policyholders settle with the defendants.
In April 2025, Hawaii legislators allocated $807 million toward the State of Hawaii’s portion of the settlement agreement. The court is expected to grant final approval of the settlement in the first quarter of 2026, after which HEI and HECO will be released from the pending lawsuits following the first settlement payment.
HEI has sufficient financial resources to fund its settlement obligations, which will be paid over four years. The company had accumulated around $1.1 billion of cash by the end of the first quarter of 2025. Of this amount, $479 million was set aside in a special purpose vehicle to pay the first of four $479 million annual installments due in early 2026, thirty days after court approval.
Despite the progress in raising the funding for the initial settlement payment, future installments will continue to impact HEI’s balance sheet and depress its credit metrics on a consolidated basis or at HECO, depending on how they are financed. Moody’s projects HEI’s consolidated CFO pre-working capital to debt ratio to reach approximately 14% to 15% in 2026 and 2027.
The State of Hawaii is taking steps to limit the future liability exposure of the company. Senate Bill 897, passed by the Hawaii State Legislature in April 2025, directs the Hawaii Public Utilities Commission (HPUC) to structure a liability cap on economic damages from future wildfires to be approved by the governor.
From an ESG perspective, progress in resolving wildfire claims with Lahaina and other affected residents will improve the company’s customer relations. The wildfire legislation may help reduce the company’s future exposure to wildfires—a form of physical climate risk.
HEI’s speculative-grade liquidity rating was upgraded to SGL-2 from SGL-3, reflecting the organization’s improved liquidity and higher cash on hand. As of the end of the first quarter of 2025, the company held $629 million in unrestricted cash. It also maintained $479 million in restricted cash earmarked for its first settlement payment, expected in early 2026.
HECO currently generates sufficient cash flow from operations to cover most of its traditional maintenance capital expenditures. External liquidity sources include $175 million of revolving credit capacity at the holding company and $200 million at the utility.
The revolving credit facilities do not contain any rating triggers that would affect access to the commitments and do not require a material adverse change (MAC) representation for borrowings. As of March 31, 2025, both HEI and HECO were in compliance with all applicable financial covenants.
HECO and HEI’s revolving credit facilities expire on May 14, 2027, except a small portion of each that expire on May 14, 2026. On December 30, 2024, HECO entered into a term loan credit agreement with a $50 million commitment that matures on December 29, 2025.
HECO also has access to an asset-based lending (ABL) facility that allows borrowings of up to $250 million on a revolving basis using certain accounts receivable as collateral. As of March 31, 2025, the total available capacity under the ABL Facility was $220 million and undrawn.
HEI’s positive outlook reflects the potential for ratings upgrades once the pending settlement is finalized, there is further progress on implementing protections to limit the financial risk of future wildfires and there is additional clarity on the company’s plans for financing future settlement installments.
Additional upgrades may be considered if the court finalizes the settlement—anticipated in early 2026—and once the HPUC establishes and the governor approves a liability cap in accordance with S SB 897. Other wildfire risk mitigating measures, including the creation of a disaster fund offering substantial financial protection, could also support future upgrades.
A negative rating action is possible if the settlement is not approved and implemented, additional measures are not put in place to financially protect the utility from future wildfires, or if HEI or HECO experience liquidity constraints or capital markets access issues.
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