Hawaiian Electric Shares Plunge 13.9% Amid Settlement Uncertainty

Hawaiian Electric Industries experienced a significant drop of 13.9% in pre-market trading amid ongoing uncertainties regarding a proposed global settlement for claims related to the August 2023 Maui wildfires.

Initial optimism surrounding the settlement has diminished as obstacles to the agreement have surfaced. The proposed $4.037 billion settlement aims to address all tort claims associated with the wildfires and includes a $1.99 billion payment from Hawaiian Electric.

However, the agreement hinges on the resolution of disputes between wildfire victims and their insurers concerning subrogation claims, which poses a potential setback that could jeopardize the entire settlement process.

According to Wells Fargo, if the 90-day negotiation period lapses without a resolution regarding the distribution between victims and insurers, or without an appropriate court order to redirect the subrogation claims risk from defendants back to policyholders, the settlement could collapse. This scenario would likely result in the revival of tort trials against Hawaiian Electric, significantly increasing the company’s financial risks.

The dilemma has intensified following Hawaiian Electric’s recognition of a $1.71 billion pre-tax charge in Q2 2024 linked to the unresolved settlement. This charge has raised concerns regarding the company’s ability to meet its outstanding debts without a clear financing strategy. Analysts from Wells Fargo noted that if a financing plan is not established before Hawaiian Electric’s due 10-K filing, the company may face defaults on certain debt terms, giving lenders the option to call in their loans.

Wells Fargo anticipates that, assuming the $1.99 billion liability is finalized, Hawaiian Electric’s stock could be valued at approximately $14 per share. However, this valuation is subject to significant depreciation if the company’s liabilities increase or if the settlement ultimately fails. In the worst-case outcome, where the settlement is not finalized, there is a risk that Hawaiian Electric’s equity value could diminish to zero.