Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hawaiian Electric Industries Inc (HE, Financial) reached a settlement agreement in principle to offer those who suffered loss from the Maui wildfires an accelerated path to recovery.
- The settlement provides a clearer line of sight toward resolution of the wildfire-related tort litigation and increased certainty for the company's path ahead.
- The utility is implementing enhanced wildfire operational strategies and practices, including a Public Safety Power Shutoff program (PSPS) to mitigate risks.
- Hawaiian Electric is advancing a broader program of wildfire mitigation work, dedicating nearly $120 million of its capital budget to these efforts.
- American Savings Bank (ASB) improved profitability and grew net income in the second quarter compared to last year, showing strong core operations and earnings.
Negative Points
- Hawaiian Electric Industries Inc (HE) recorded a $1.71 billion pretax loss for the quarter due to the proposed settlement, resulting in a consolidated net loss of $1.3 billion.
- The proposed settlement is still an agreement in principle and requires resolution of claims from insurance companies, which adds uncertainty.
- The utility's dividend to HEI has been suspended due to the going concern assessment related to the financing plan for the settlement payments.
- Higher O&M and wildfire mitigation expenses led to lower utility core net income compared to the same quarter last year.
- The company disclosed a substantial doubt regarding its ability to continue as a going concern until the financing plan for the settlement is sufficiently progressed.
Q & A Highlights
Q: The plaintiffs and defendants agreed to settle the wildfire cases without the insurance companies who are looking for a significant amount. What gives you confidence the settlement will ultimately be finalized under the terms of the deal where the plaintiffs still need to reach an agreement with the insurers or obtain the court order barring them from recovering outside the settlement?
A: The settlement represents a significant move forward, laying out the most critical terms to settle the claims. It allows 90 days for discussions between individual plaintiffs' lawyers and subrogation plaintiffs or for the court to issue an order to resolve the issue. This process brings clarity and a well-defined path ahead.
Q: You laid out a mix of financing options to pay for the settlement. Do you have a level of capital spending in mind over this four-year period and an FFO-to-debt target over that timeframe?
A: We are currently working on our long-term capital plans, which depend on the timing of the settlement agreement. We aim to maintain investment-grade credit metrics over the long term, which translates into lower customer bills. We are in constant communication with rating agencies regarding our FFO-to-debt targets.
Q: On your financing plan, you mentioned a mix of debt, common equity, equity-linked securities, and other potential options. Could you provide more color about these other potential options?
A: We are keeping our options broad, including regular way debt, equity, and equity-linked securities. There are various other financing mechanisms available in the marketplace that we are considering.
Q: Can you explain how Judge Cahill's court could force the insurers into accepting the settlement and waiving their ability to pursue subrogation claims against the defendants?
A: The individual plaintiffs filed a motion challenging the subrogation plaintiffs' ability to independently seek claims. Judge Cahill will hold a hearing on August 13 to address whether subrogation plaintiffs must work through individual plaintiffs' settlement amounts. The outcome of this hearing will bring more clarity to the overall settlement agreement.
Q: What happens after 90 days if the court doesn't come to an agreement and the insurers and victims haven't resolved their disputes?
A: If the 90 days pass without resolution, all parties will reassess the next steps. The term sheet requires either an agreement between individual plaintiffs and subrogation plaintiffs or a court decision within this period.
Q: With the global settlement seemingly within reach, would increasing the total size of the settlement above $4.04 billion to get the insurers on board be a possibility?
A: We believe the current term sheet reflects a fair outcome. The issue is between the subrogation plaintiffs and the individual plaintiffs. We are cautiously optimistic that it will be resolved without increasing the settlement amount.
Q: How would you describe the prospects and willingness of the defendants to increase the total size of the settlement?
A: I can't comment on the capacity of all the defendants. The overall amount and allocated amounts were developed through the mediation process, considering various factors.
Q: What are the financial implications of the proposed settlement and the work underway to develop a financing plan?
A: We recorded a $1.71 billion pretax loss for the quarter due to the proposed settlement. We are working closely with financial advisors to develop a financing plan, which may include a mix of debt, common equity, and equity-linked securities. The payments are expected to begin no earlier than mid-2025.
Q: What are the strategic options for American Savings Bank (ASB) in connection with HEI's ongoing evaluation?
A: HEI has been undertaking a comprehensive review of strategic options for ASB. There is no set timetable for the review, and no assurances that any actions will result from our evaluation. We reported a non-cash goodwill impairment charge for the bank in connection with this ongoing evaluation.
Q: How is Hawaiian Electric advancing its wildfire mitigation work and enhancing resilience?
A: Hawaiian Electric is implementing enhanced wildfire operational strategies, including a Public Safety Power Shutoff program. The utility has deployed new weather stations and AI-enhanced video cameras to improve situational awareness. Investments are being made to harden the grid, upgrade poles, install covered conductors, and strategically underground lines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
