Hawaiian Electric’s Credit Rating Downgraded to Junk by Moody’s

Hawaiian Electric Co.’s credit score was lowered into junk territory by Moody’s Investors Service, cementing the embattled utility’s status as a so-called fallen angel after fires spread across Maui.

(Bloomberg) — Hawaiian Electric Co.’s credit score was lowered into junk territory by Moody’s Investors Service, cementing the embattled utility’s status as a so-called fallen angel after fires spread across Maui. 

The company’s debt rating was downgraded to Ba3, three steps into junk, from Baa1 on Friday. Its parent company, Hawaiian Electric Industries Inc., was assigned a B1 grade. Moody’s cited the “heightened uncertainty” around the company and its liabilities if it is found at fault for the fires. The company’s debt remains on review for further ratings cuts. 

Hawaiian Electric’s shares surged on a statement that it isn’t seeking to restructure, but a series of credit downgrades will make it more difficult for the company to fund itself. Very few utilities carry junk credit ratings because their businesses are expensive to operate and require regular capital markets access. 

The company said in a regulatory filing Friday that its goal is not restructuring, but to “endure as a financially strong utility,” sending shares surging as much as 26% in pre-market trading.

The fires could result in “significant financial liabilities if the utility is found to be at fault once investigations are completed, as well as regulatory risk related to cost recovery for system rebuilding,” Nati Martel, a Moody’s vice president and senior analyst, said in a statement. 

The Moody’s cut is the utility’s second major downgrade into junk, which pushes the its securities into high-yield credit indexes. The move comes in the wake of a major fire in Maui, which has become the deadliest in the US in more than a century. While no official cause has been determined, attention is already focusing on whether power lines owned by Hawaiian Electric played a role.

S&P Global Ratings downgraded Hawaiian Electric Industries and its units including Hawaiian Electric Co. to a junk grade of BB- from BBB- on Aug. 15, pointing to class-action lawsuits filed against the utility amid reports of downed power lines that were knocked over by strong winds in the lead up to the blazes. 

The company’s credit quality is at risk of a “material deterioration” if the plaintiffs prevail, according to S&P. 

Hawaiian Electric provides power to about 95% of the state’s residents. The company has seen its assets plunge in the wake of the fires. 

–With assistance from Amanda Albright and Mark Chediak.

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