November 12, 2023 - 1:48pm EST by
2023 2024
Price: 11.61 EPS 2 2
Shares Out. (in M): 110 P/E 6 6
Market Cap (in $M): 1,273 P/FCF 6 6
Net Debt (in $M): 2,000 EBIT 391 400
TEV (in $M): 3,273 TEV/EBIT 7 7
Borrow Cost: General Collateral

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Hawaiian Electric (“HE”) is likely to file bankruptcy in the next year, wiping out the equity, which still sports a $1.3bn market capitalization.  This is not PG&E, where the fire liabilities aggregated to far less than the company's enterprise value.  HE’s fire liabilities and the incremental capex to fire harden their assets exceed HE’s assets.  Fire claims are $4-6bn and the utility is worth $3-4bn.  However, the utility has $1.7bn of debt too.  This suggests total utility claims of $4.9-7.4bn vs. $3-4bn of utility value.  There is a Holdco which owns a bank worth $500-600mm but this entity is burdened with $637mm of debt with maturities, rendering the Holdco worthless.  Unless claims are substantially below $1.5bn, we don’t see equity value.  While there might be value in the absurdly optimistic case where the utility is worth $5.0bn and claims of $3.0bn, we suspect that the debt issuers equitize rather than an enormous equity rights offering which funds extremely close to the fair value of the asset.  Also the below analysis substantially understates litigation/bk fees if HE fights this for longer before filing.



We believe that the 3Q call is a catalyst to crush the stock as it revealed the following:

  • The company initially gave equity holders hope by stating they wouldn’t file for bankruptcy.  However, they did not reiterate that on the 3Q call.  While it might be lost on some long investors, there were numerous indications that the company is preparing to file for bankruptcy.  As this reality sinks in, investors will sell.   These indications were 1) suspending guidance and the dividend 2) The payment to a fire fund which concedes guilt.  3) The delay of their 10Q which might indicate the company may have have had to issue a going-concern warning if insurance didn’t step in.  4) the CFO’s comment that liquidity is ok “at this point in time” is ominous.  5) the substantial 3Q FCF burn 6) the concession they did not have access to capital markets.

To some investors that are holding on still, it might be lost on them how negative the turn of events was.  However, we suspect some will come to their senses and sell.


We suspect the stock is elevated for three reasons:

  1. Management stated they wouldn’t file for bankruptcy and the fire wasn’t their fault
  2. PG&E equity avoid a wipe-out.  However, this analysis is absurd and ignores Fire Claim/TEV which are totally different
  3. Sellside stated that even if they filed for bankruptcy that the Holdco assets were worth $7/share.  This ignores the Holdco debt which matches the size of the Holdco assets.


Two issues could save the company.

  • Irrefutable proof that the 2nd fire wasn’t their fault
  • A bailout of equity holders by the Hawaiian state via an enormous grant and/or an enormous hike to the electricity prices

Here is what we know about the fire.  HE has conceded that their equipment caused the first fire.  The local fire department put the first fire out and waited around to make sure it was out.  They declared it extinguished and left to fight other fires that HE’s equipment caused.  If not for other substantial risks, perhaps the fire department would have waited longer to guarantee flare-ups didn’t occur.  However, HE’s equipment had them fighting fires the night before and presented other substantial risks.  As such, the fire department left the scene.  HE stated that at some point before the second fire started, they turned off the electricity.  For this analysis, I assume that HE’s claim that the electricity was off is true.  However, minutes after the fire department left, the second fire that destroyed Maui and killed 99 people sparked less than 100 yards from HE’s original fire.  Once notified, the fire department rushed back and was there within minutes of notification, but it was too late. 


HE claims the 2nd fire wasn’t their fault because the electricity was down.  To me, this claim is an outrage and a blight on the graves of the 99 people who died and the people who lost their homes and livelihoods.  The first fire was enormous.  That day presented perfect conditions to spread a fire – wind bursts of 75mph+ and limited humidity.  Embers from a fire can travel miles.  As you can see from the video link, HE’s first fire put millions of baby fireballs into the air with a massive wind to spread them onto an arid landscape.




Is it surprising that another fire erupted 100 yards from the original inferno?  HE would have you believe that there was … 1)  a lightning strike that nobody noticed or investigators haven’t sensed despite all the video surveillance from adjacent residents 2)  a pyromaniac drove up and started a fire within minutes of the fire department's departure?  3)  somebody was camping and started a campfire?  4)  a smoker threw their cigarette into the dry brush next to a massive fire that nearly burned down the community.  HE’s stance is absurd.  The longer they maintain it, the greater the risk of a public outcry.  Once they lose political support, the extremely low odds of a state bailout are extinguished.  HE is effectively trying to say that it was the fire department's negligence.  Historically, this type of argument has been a legal loser.  Due to HE’s negligence, the local fire department was over-burdened and rushing from fire to fire.  They waited for a substantial period before deciding to move on.  If they hadn’t moved on, the other fires fought in the interim could have easily triggered a disaster.  There could be some shared blame on the wrongful deaths as the emergency response was poor, but we suspect that HE is ultimately blamed for the fire and takes the majority of the $3.5bn+ of property damages while sharing in the $1.0.-1.5bn of wrongful death claims.


Could the state decide to bailout shareholders?  So far, HE has escaped substantial public scrutiny/outcry, which I find staggering.  The state and HE just created a $150mm fund for wrongful death and injury.  The fund provides roughly 1/10th of the likely claim quickly if you drop your legal claims on wrongful death against the state and HE.  if all the of the wrongful death claims took this, this could reduce claims by $1.5bn.  however, there are lawyers prowling the county who will make it clear victims can receive $10-15mm minus fees.  I suspect most can/will hold out.


HE’s $75mm was funded via insurance which is an interesting tidbit.  On one hand, this is a humanitarian gesture to fund those in need.  On the other, it's clearly a predatory attempt to get the family members of those that died to pay for a good part of the fire damage when they are desperate.  Further, it’s a curious concession of guilt by HE and its insurance carrier.  Clearly, HE and their insurance carrier have concluded internally that the 2nd fire is their fault.  It must have been a curious insurance claim request.  Insurance company:  “why are you asking for a claim?  I thought the second fire wasn’t your fault?”  HE: “everyone knows we burned the place down?  You can fund our half of the $150mm now and we will give you X in return.”  Insurance company: “we don’t think it was your fault.  We aren’t paying yet.”  HE: “We know it was our fault.  The fire started 100 yards from the first fire.  We have video showing it smoldering.  We are toast.  We really want you to take the unusual step of paying this fast in return for X.”  Insurance company:  “Ok…. I guess.  When are you going to concede publicly?  This is awkward.”  The above is conjecture but something to this effect must have happened?


All that said, could the state socialize the costs?  The state could bail out HE shareholders in several ways.  1)  Create a $4-6bn fund to pay for the damage.  This would create a tax burden of $10-15k after interest per household in Hawaii.  2)  Allow the PUC to boost electricity prices substantially even though Hawaii already has the highest electricity costs in the country.  Ultimately, the governor and the PUC along with HE made poor capital allocation decisions and allowed HE to defer fire-hardening capital as they wanted to keep electricity prices low and grow their renewable portfolio.  The fact that the state government is partly culpable is probably lost on most.  However, it would be political suicide to provide this type of funding or raise capital to bail out the shareholders when there is a far easier solution…. File for bankruptcy and let the equity and bond holders pay for all of it.  If the Governor/PUC wants capital to fund grid hardening and renewables while holding electricity prices in check, they must force HE into bankruptcy.  It may take a while for the population and political class to understand that bankruptcy doesn’t mean electricity stops flowing in Hawaii… but as the advisors provide an education…. We suspect that the political class is going to drop the blame on HE shortly.  This is especially true as this will NOT be the last fire in Hawaii.



HE incinerated cash in 3Q.  We aren’t exactly sure where it went as we don’t have a cashflow statement.  This left liquidity of $127mm at the Holdco and $275mm at the utility.  However, the utility paid down a $100mm maturity in 4q, leaving PF utility liquidity at $175mm.  As you can see below, the utility does NOT generate free cashflow.  We can only imagine the PUC is asking for more capital expenditures for fire-hardening.  Do you let rebuilding occur with a festering fire hazard?  HE has an army of advisors and lawyers swarming and 64 lawsuits.  The RBL draws add $25mm more to interest each year.  If we assume the PUC asks for $50mm more capex, then the assets burn $50mm of FCF prior to the new interest/legal/advisor expense.  The new expenses run $50-125mm a year.  As such, the company MIGHT/SHOULD be able to make it through 2024 but a lot depends on the capex request.  There is a large payable account of $215mm at the utility which MIGHT accelerate terms.  However, our base case is that the company doesn’t have to issue a going concern when it files its 10Q this week.  That could change in a quarter or two.  The company probably doesn’t want to file with zero cash either.  As such, a bankruptcy filing could be this year or early next year.  If the analysis above is correct, the risk grows every day over the next year.


Next 12 Months






Hardening Capex




New Interest
















That said, the company stated that the 10q was delayed due to the fire fund.  HE coaxed the insurance carrier to take the unusual step of pre-funding a claim.  If HE was required to fund that claim, we wonder if HE would have had to issue going-concern in its 10Q.  We suspect this uncertainty on who would fund the fire fund caused the delay.  Perhaps, the insurance carrier stepped up at the last second, allowing the company to avoid a going-concern statement.  It is extremely curious that the creation of the fire fund in early November caused a delay on a 9/30 10q.  If true, this suggests HE might be $75mm away from the edge.  If so, there should be a going-concern warning in the coming quarters.


At the onset of this disaster, HE’s management team denied responsibility and suggested they wouldn’t have to file for bankruptcy.  This narrative plus the false concept of bank value at the Holdco has protected the equity.  However, HE did not repeat their declaration of solvency on Friday’s call.  If anything the CFO’s hesitation on the liquidity question and reference to “at this point” suggests a growing realization that they are delaying the inevitable.  Further, their odd contribution to the fire fund confirms that HE and their insurance carrier internally acknowledge they are guilty.  The company hired a CFO with restructuring experience and must have bankruptcy advisors swarming.  As the lawsuits pile up, the advisors will push the company toward bankruptcy so the lawyers and restructuring advisors can collect their massive fees.  I don’t think this entity will last long.  I suspect the next step will be switching the management incentive program to cash, as the team doesn’t want to get paid in worthless equity.



Below is the TEV of HE over through 2014.  The TEV of the whole company has typically traded at $4-4.5bn TEV.  Clearly today, the company is worth less given the fire risk and regulatory burden to harden the asset.  Also, regional bank assets traded in excess of book in the past.  The recent regional bank crisis has compressed that.  Not to mention, interest rates are much higher than the observation period below.


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I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Going-concern statement

Conversion of management comp to cash

Leaks regarding bankruptcy process

Final determination of fire cause

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