Tuesday after S&P Global downgraded Hawaiian Electric Industries’ credit rating to junk, the company’s stock fell more than 30%.
Hawaiian Electric (HE) and all of its subsidiaries were downgraded to BB- by S&P Global after a class action lawsuit claimed that the electric company’s energized power lines were knocked over by strong winds and started the devastating wildfires that claimed the lives of nearly 100 people.
Below investment grade, or “junk,” is a rating of BB-. This indicates to investors that lending money to the company is a risky wager because the company faces a high risk of default.
S&P Global said in a statement that the wildfires have increased the company’s risk of default and that additional credit downgrades may be possible.
“The wildfires destroyed a significant segment of HEI’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,” S&P said in a statement.
Depending on how well the plaintiffs fare in their court cases, more lawsuits could arise, endangering the business’s credit rating even more.
In California, there is precedent. After a state government investigation determined that Pacific Gas and Electric’s (PCGPRA) electrical equipment was to blame for the 2018 Camp Fire, the company agreed to several settlements worth a combined $12 billion.
According to a different report from Moody’s Investors Service, Hawaii, unlike California, does not have a law that strictly holds utility companies accountable for damages brought on by their equipment, regardless of who was at fault.
That does not imply that HEI would be totally exonerated.
“Nevertheless, there could be a finding of negligence or even gross negligence against the utility as the investigations related to the wildfires unfold,” Moody’s said.
Furthermore, according to Moody’s, none of HEI’s significant power plants or developing wind and solar projects were impacted by the fires, which reduced the expense of restoration.
Source-CNN
