Hawaiian Electric: Company Seeks Restructuring Advice, Uncertainty Up to Extreme

We are lowering our fair value estimate for Hawaiian Electric HE from $17 to $13 per share as we continue to assess the impacts of recent wildfires in the utility’s service territory.

We’ve increased our Morningstar Uncertainty Rating for Hawaiian Electric from Very High to Extreme to account for the wide range of possible outcomes from lawsuits filed against it. According to reports, the company has sought restructuring advice.

With the firm’s small market cap and approximately one-third of its shares trading daily during the past week, we continue to expect significant daily stock price volatility.

We have also increased our estimate for wildfire liabilities based on news reports from outlets such as The Wall Street Journal suggesting Hawaiian Electric’s equipment started the Lahaina wildfire. Our new, higher liability estimate led to our fair value estimate decrease.

The Lahaina fire has killed over 100 people and destroyed 2,200 structures, with an estimated cost of approximately $5.5 billion, according to a damage report released over the weekend by the Pacific Disaster Center and the Federal Emergency Management Agency.

An important distinction between Hawaiian Electric and PG&E PCG is the different legal standards under which the utilities operate. California’s inverse condemnation ultimately led to the bankruptcy of PG&E. In Hawaii, plaintiffs will be required to show that Hawaiian Electric was negligent or could have reasonably prevented a loss.

Given the Uncertainty Rating of Extreme we’re now applying to the stock, we caution that investors could experience material capital loss given the wide range of potential outcomes, which remain very uncertain and could change as the situation develops.