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���������ֳ� - New York - 25 Oct 2024: ���������ֳ� has affirmed the Long-Term Issuer Default Ratings (IDRs) at 'B' for Hawaiian Electric Industries, Inc. (HEI), and Hawaiian Electric Company, Inc. (HECO), Maui Electric Co. (MECO) and Hawaii Electric Light Company (HELCO). ���������ֳ� has also affirmed HEI and HECO's Short-Term IDRs at 'B', including the CP. ���������ֳ� has affirmed HECO and MECO's senior unsecured debt at 'B+' with a Recovery Rating of 'RR3', and HELCO's senior unsecured debt at 'BB-'/'RR2'. The ratings have been removed from Rating Watch Negative and assigned Stable Outlooks.

The utilities are exposed to large third-party liabilities from the August 2023 wildfires in Maui. The Stable Outlook incorporates a recent equity issuance that will provide financing if the Maui wildfires settlement is approved and a liquidity cushion for the next few years if final settlement agreement is not executed. Credit quality improvement will depend on resolution of the wildfire financial exposure and financing of those liabilities in a credit supportive manner.

���������ֳ� believes long-term credit improvement and stability for HEI and HECO depend on legislative and regulatory outcomes that support their financial health and efforts to enhance wildfire resilience. This would include accessing capital markets at reasonable costs to finance wildfire mitigation and limiting exposure to potential future wildfire liabilities.

Key Rating Drivers

Equity Issuance Provides Liquidity Cushion: The recent successful $558 million equity capital raise will provide credit-supportive financing if the Maui wildfires settlement becomes final and a liquidity cushion for next couple of years in case the final settlement agreement is not executed. HEI and HECO had available cash of $124 million and $89 million, respectively, as of June 30, 2024, following full revolver draws after the wildfires in 2023. Suspension of HEI's shareholder dividend in fall of 2023 and available cash on its balance sheet should provide a cushion in the near term as they look to resolve exposure to third-party liabilities from the Maui wildfires.

Near-term maturities are limited to $47 million at HECO and a $50 million at HEI in 2025. HECO also has a $145 million maturity in 2026 and a $100 million maturity in 2027. Both revolvers mature in 2027. Absent access to capital markets, the companies should be able to repay those maturities with cash on hand and access to a $250 million ABL facility at the utility. ���������ֳ� projects HEI's expenses to be around $50 million annually, consisting primarily of interest expense payments, corporate overhead and litigation-related expenses. HEI is also undertaking a comprehensive review of strategic options for its subsidiary American Savings Bank (ASB; BBB/Stable), including a potential sale. ���������ֳ� believes the sale could provide a material source of funding to HEI and assumes bank sale would ultimately serve as a source of funding for wildfire litigation claims.

Wildfire Settlement Agreement: On Aug. 2, 2024, HEI announced that HECO, HEI and other defendants reached a proposed settlement with individual and class plaintiffs, resolving their 2023 Maui wildfires tort lawsuits. ���������ֳ� views this as a positive step forward. The agreed payment amount is approximately $4.037 billion for all defendants, with HEI/HECO responsible for $1.99 billion, to be paid in four instalments starting no earlier than mid-2025.

The proposed settlement is an agreement in principle and is contingent on resolving insurance company claims, with no additional payments from defendants. Insurers that have paid claims for property loss and other damages did not sign on the settlement. ���������ֳ� views a final settlement agreement in the Maui wildfires as crucial for resolving potential large wildfire liabilities and for the companies' ability to access capital markets at a reasonable cost.

Outstanding Settlement Issues: Subsequent to the settlement announcement, the Maui Circuit Court Judge issued an order limiting the insurance companies' wildfire recovery to the already agreed upon settlement amounts, barring them from pursuing the defendants in a separate lawsuit. The Maui Circuit Court Judge granted an order for reserved questions to the Hawaii Supreme Court, and the reserved questions are currently pending before the Hawaii Supreme Court. There is no assurance the Hawaii Supreme Court will uphold the lower court ruling nor that the insurers and plaintiffs will separately agree how to divide the funds between them.

If a final settlement agreement is signed, it will take effect following judicial review and approval. In addition, the state of Hawaii's contribution to the settlement must be approved by the legislature. The settlement has a nine-month deadline from the Maui Circuit Court Judge's Aug. 19 order before it expires. The parties could agree to extend the timeline. If the final settlement does not take effect, the parties could seek to negotiate a new settlement or go to trial, which could take several years to resolve and result in possibility higher total liabilities than the settlement.

Federal Investigation Report Released: On Oct. 2, 2024, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) released its final report on the cause of the 2023 Maui fires. The report's findings aligned with HEI's previously reported findings on the cause of fires. The ATF report also supported the state investigation findings that there was no single factor to blame for the fires. The ATF classifies both the Morning Fire (caused by downed power lines) and Afternoon Fire (which destroyed Lahaina) as accidental.

Going Concern Risk: HEI and HECO disclosed a 'going concern' risk in their financial statements related to the financing of the proposed settlement, when they booked a lump sum loss from the accrual of estimated wildfire liabilities with its 2Q24 financial results. The loss was classified entirely as a current liability. HEI must demonstrate it has a financing plan that would enable it to pay its obligations, including any settlement payments, as they become due in the next 12 months of the financial statements in order to alleviate the going concern determination. HEI needs to resolve the going concern determination before it files its 2024 annual financial statements, which have a deadline of March 3, 2025, otherwise it would default under its credit agreement (absent a waiver).

In its recent SEC filing, HEI indicated that the classification of wildfire liabilities as current or long-term could be adjusted in future quarters to reflect changes due to developments in the settlement process, primarily an extension of the timeline for reaching a final settlement. If the company reclassifies only the first payment as a current liability, the recent equity issuance should provide sufficient funding to resolve 'going concern' risk. ���������ֳ� expects HEI and HECO to address 'going concern' risk in a timely manner.

No Legislative Wildfire Risk Support in 2024: Hawaii's legislative session concluded in May 2024, without passage of the proposed bills to mitigate wildfire risk exposure. Senate bill SB2922 was deferred. The bill would have allowed for securitization as a financing option to be used for financing wildfire mitigation investments as well as costs and expenses arising out of catastrophic wildfires. Another bill, SB3344, was also tabled earlier in the process. It would have established a fund for property owners to recover damages from future catastrophic wildfires and provide support in case of another catastrophic event for utilities and all other affected parties. The bills can be resubmitted in the next session in early 2025.

Capex Focused on Wildfire Mitigation: HECO is limiting capex to the lower end of its historical range and suspended its dividend payment to the parent as it focuses on conserving cash. Most of the spending is for maintenance capex, with a focus on wildfire/resilience in the next two years. The company is taking proactive measures, investing in wildfire mitigation, including implementation of a PSPS program, T&D hardening, and installing fire detection cameras and weather stations. The company is expected to spend about one-third of its capex on wildfire risk mitigation in 2024.

In February 2024, HECO received PUC approval for their five-year $190 million Grid Resilience plan. The plan includes resilience investments as the first phase of a long-term effort that will help harden the utility's grids against severe weather-related events, including mitigating wildfire risk. This approval enables the utility to move forward with $95 million in Department of Energy funding by matching it with $95 million in rate recovery capex.

Higher Operating Expenses: We expect HECO's earnings and cash flow to be pressured by materially higher O&M expenses, well above inflation-adjusted levels allowed under its regulatory construct. The expenses are mainly driven by higher operating costs related to wildfire mitigation, higher insurance premiums and higher labor expenses than expected under regular operations. ���������ֳ� views the performance-based approach in Hawaii as a relatively stable rate-setting framework for the utilities, providing stable cash flow. However, absent a rate case filing to provide recovery for the higher O&M, we expect HECO to materially underearn its allowed return on equity (ROE) over the forecast period.

Parent-Subsidiary Linkage: ���������ֳ� views HELCO and MECO, HECO's subsidiaries, as weaker than HECO due to their small scale of operations and limited capital-market access. HECO benefits from ownership of multiple operating subsidiaries that provide scale, diversity and stability to cash flow. We consider legal incentives high, because HECO guarantees its subsidiaries' debt, resulting in HELCO's and MECO's IDR being equalized with HECO's IDR. HECO's IDR reflects a consolidated credit profile. Under the terms of HEI's revolving credit facility (RCF), it would constitute an event of default if HEI no longer owns HECO. ���������ֳ� has therefore equalized the IDRs of HEI and HECO.

ESG - Customer Welfare - Fair Messaging, Privacy & Data Security: Related to the involvement of HECO's equipment in sparking the morning fire in Maui wildfires and the devastation caused to its customers.

ESG - Exposure to Environmental Impacts: Heightened risk from wildfires and uncertainty about utility-sparked wildfires results in a material negative impact on the utilities' credit quality.

ESG - Exposure to Social Impacts: Unusual wildfire activity in HECO's service territory has caused material adverse customer impacts.

Derivation Summary

HEI is comparable to utility holding company PG&E Corporation (PCG; BB+/Stable) in terms of limited access to capital markets caused by potential wildfire-related third-party liabilities. Both HEI and PCG are utility holding companies operating in a single state with generally supportive rate regulation. Similar to HEI and HECO, PCG's wholly owned utility subsidiary Pacific Gas and Electric Company (PG&E; BB+/Stable) experienced devastating wildfires in its service areas in 2017-2018.

In the case of PCG/PG&E, potential third-party liabilities and financial pressures were accelerated by inverse condemnation, resulting in a solvency crisis that ultimately forced the utility and its parent to file for protection under Chapter 11 of the U.S. Bankruptcy Code. In Hawaii, there is no precedent in applying inverse condemnation to an investor-owned utility. Therefore the determination and ultimate payment of potential liabilities related to the fires could take longer to resolve unless the pending settlement is finalized. ���������ֳ� believes the risk of catastrophic wildfire significantly heightens business risk for HECO and its subsidiaries, although we expect HECO to focus on wildfire mitigation in an effort to prevent future catastrophic wildfires.

Nonetheless, the overhang of billions of dollars in potential wildfire liabilities, combined with other potential adverse impacts from the wildfires, have significantly pressured HECO's access to capital at reasonable rates.

HECO is much smaller than PG&E, which is one of the largest utilities in the U.S. In its 2019 restructuring, PCG and PG&E utilized an estimated rate base value of approximately $29 billion for 2020, and they agreed to pay roughly $25.5 billion of wildfire-related liabilities to fire victims and others. PCG and PG&E emerged from bankruptcy in July 2020. HECO's consolidated rate base was $3.9 billion at year-end 2023 and the pending settlement amounts to about 50% of the total rate base. Unless the current settlement is finalized, the actual wildfire liabilities could exceed ���������ֳ�'s recovery analysis estimates of $3.8 billion.

Key Assumptions

���������ֳ�'s Key Assumptions Within Our Rating Case for the Issuer Include

--HECO capex toward the lower end of historical spend over the forecast period;

--HECO's ROE lag widening, primarily driven by higher O&M costs;

--No equity issuance over the forecast period beyond $558 million issued in 2024, with near-term debt maturities repaid using available cash on hand and the ABL revolver;

--To better represent the risk to the consolidated company, ���������ֳ� deconsolidates the bank and adds the contributions as recurring dividends to HEI. ���������ֳ� assumes no bank dividend in 2024 and beyond.

--Any bank sale proceeds used to repay holding company debt or invest in the utility, freeing up other resources to finance wildfire liabilities;

--HELCO's and MECO's operations form roughly 15% and 14% of HECO's, respectively, consistent with historical levels.

Recovery Analysis

���������ֳ� used a bespoke recovery analysis to assign debt instrument ratings for HECO and its subsidiaries. In a hypothetical default scenario, if the current settlement is not finalized and the company goes to trial ultimately resulting in significantly higher wildfire liabilities than the current settlement. This could then drive HECO and its utility subsidiaries to file for bankruptcy. Bankruptcy proceedings would also constitute an event of default of the ABL facility.

���������ֳ� utilizes the 2023 rate base for HECO, MECO and HELCO to determine the going-concern enterprise value of these entities. ���������ֳ� assumes $3.8 billion of wildfire-related claims are lodged jointly and severally against HECO and MECO and expects these claims to be pari passu with their outstanding unsecured obligations.

For HELCO, ���������ֳ� assumed a going-concern enterprise value of $630 million and 10% administrative claims. ���������ֳ� assumes HELCO does not bear any liability from potential costs and liabilities related to the Maui wildfires that HECO and MECO may bear. The Recovery Rating for HELCO's senior unsecured debt is capped at 'RR2' in accordance with ���������ֳ�'s Corporates Recovery Ratings and Instrument Ratings Criteria.

���������ֳ� assumes a going-concern enterprise value of $615 million for MECO, which is applied to the unsecured wildfire liabilities and unsecured debt obligations after deducting 10% administrative claims. The Recovery Ratings for MECO's unsecured debt reflect the unsecured guarantee from HECO, resulting in an 'RR3' rating.

For HECO, ���������ֳ� assumed a going-concern enterprise value of $3.2 billion, which includes residual equity value from HELCO. After deducting 10% administrative claims, the enterprise value is applied to the $250 million of senior secured ABL facility. The remaining enterprise value is then applied to the unsecured wildfire liabilities, HECO's unsecured debt obligations and MECO's remaining unsecured debt claims, on a pari passu basis.

RATING SENSITIVITIES

Hawaiian Electric Industries, Inc.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--Finalization of the Maui 2023 wildfire settlement agreement coupled with the clear financing plan to fund the payments in a credit supportive manner;

--The ratings are unlikely to be restored to prior levels due to heightened risk arising from increasing wildfire activity in utility subsidiaries' service territory and the incremental cost of expected wildfire-mitigation spending, which is expected to pressure credit metrics;

--Tangible evidence of state regulatory and legislative support to mitigate financial risk for the utility subsidiaries against potential large wildfire-related claims and future wildfire-mitigation costs;

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--Inability to fund financial liability from Maui wildfires lawsuits;

--Unwinding of the pending Maui wildfire settlement;

--Deterioration in liquidity.

Hawaiian Electric Company, Inc.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--Finalization of the Maui 2023 wildfire settlement agreement coupled with the clear financing plan to fund the payments in a credit supportive manner.

--The ratings are unlikely to be restored to prior levels due to heightened risk arising from increasing wildfire activity in utility subsidiaries' service territory and the incremental cost of expected wildfire-mitigation spending, which is expected to pressure credit metrics;

--Tangible evidence of state regulatory and legislative support to mitigate financial risk for the utility subsidiaries against potential large wildfire-related claims and future wildfire-mitigation costs.

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--Inability to fund financial liability from Maui wildfires lawsuits;

--Unwinding of the pending Maui wildfire settlement;

--Deteriorating liquidity;

--Determination of the magnitude of wildfire-related liabilities that exceeds ���������ֳ�'s current estimates could lead to diminished recovery for unsecured debt obligations, leading to negative rating actions

Maui Electric Company Limited

Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--Positive ratings actions at HECO.

Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--Negative ratings action at HECO;

--Determination of the magnitude of wildfire related liabilities that exceeds ���������ֳ�'s current estimates could lead to diminished recovery for unsecured debt obligations leading to negative rating actions.

Hawaii Electric Light Company Inc.

Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--Positive ratings actions at HECO.

Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--Negative ratings action at HECO.

Liquidity and Debt Structure

HEI and HECO have sufficient near-term liquidity with available cash of $124 million and $89 million, respectively, as of June 30, 2024. HEI, HECO, MECO and HELCO have no maturities in 2024. In 2025 HECO has a $47 million maturity and HEI has a $50 million maturity. HECO also has a $145 million maturity in 2026 and a $100 million maturity in 2027. Both revolvers mature in 2027.

The companies have secured additional financing through the utility accounts receivable facility that would provide up to $250 million (fully available as of June 30, 2024). In late August 2023, HEI drew $175 million and HECO drew $200 million under their existing RCFs.

On Sept. 23, 2024, HEI raised $558 million of common equity. It intends to use the proceeds to fund its portion of the expected Maui wildfire tort litigation settlement and for general corporate purposes.

HEI also suspended the quarterly cash dividend on the company's common stock from 3Q23 to further improve its liquidity position. The dividend was about $160 million annually, of which about $130 million was contributed by HECO's annual dividend. If HEI no longer owns HECO, it would constitute an event of default under the terms of HEI's RCF.

On May 14, 2023, HEI and HECO exercised their first of two- and one-year extensions, respectively, to the commitment termination date with eight of the nine financial institutions to extend the credit facilities to May 14, 2027. HEI's and HECO's facilities are $175 million and $200 million, respectively, through May 14, 2026. The facilities will step down to approximately $157 million and $180 million, respectively, through May 14, 2027.

Common equity to total capitalization was 38.7% for HECO compared with the minimum requirement of no less than 35% compared to 56% as of March 31, 2024 due the $1.7 billion charge related to Maui wildfires that was booked with the 2Q24 earnings. Subsequent equity issuance should improve the ratio as of the end of the third quarter of 2024.

HEI and HECO's credit and financing agreements are independent with no cross-guarantee relationship. Migration of cash from HECO to HEI is restricted by regulatorily mandated equity capitalization of around 57%. Migration of cash from ASB to HEI is subject to quarterly regulatory review and approval, as per banking law.

Issuer Profile

HEI is a parent holding company of integrated regulated electric utility HECO and ASB, a bank, and Pacific Current. HECO, MECO and HELCO are engaged in the generation, purchase, transmission, distribution and sale of electric energy in Hawaii. ASB is the third largest bank in Hawaii. Pacific Current invests in non-regulated clean energy in Hawaii.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

to access ���������ֳ�'s latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. ���������ֳ�'s macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

Hawaii Electric Light Company Inc. has an ESG Relevance Score of '5' for Customer Welfare - Fair Messaging, Privacy & Data Security due to the involvement of HECO's equipment in sparking the morning fire in Maui wildfires and the devastation caused to its customers, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Hawaii Electric Light Company Inc. has an ESG Relevance Score of '5' for Exposure to Environmental Impacts due to heightened risk from wildfires and the uncertainty on utility-sparked wildfires, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Hawaii Electric Light Company Inc. has an ESG Relevance Score of '5' for Exposure to Social Impacts due to adverse customer and other constituent impacts associated with unusual wildfire activity in Hawaii, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Hawaiian Electric Company, Inc. has an ESG Relevance Score of '5' for Customer Welfare - Fair Messaging, Privacy & Data Security due to the involvement of HECO's equipment in sparking the morning fire in Maui wildfires and the devastation caused to its customers, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Hawaiian Electric Company, Inc. has an ESG Relevance Score of '5' for Exposure to Environmental Impacts due to heightened risk from wildfires and the uncertainty on utility-sparked wildfires, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Hawaiian Electric Company, Inc. has an ESG Relevance Score of '5' for Exposure to Social Impacts due to adverse customer and other constituent impacts associated with unusual wildfire activity in Hawaii, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Hawaiian Electric Industries, Inc. has an ESG Relevance Score of '5' for Customer Welfare - Fair Messaging, Privacy & Data Security due to the involvement of HECO's equipment in sparking the morning fire in Maui wildfires and the devastation caused to its customers, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Hawaiian Electric Industries, Inc. has an ESG Relevance Score of '5' for Exposure to Environmental Impacts due to heightened risk from wildfires and the uncertainty on utility-sparked wildfires, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Hawaiian Electric Industries, Inc. has an ESG Relevance Score of '5' for Exposure to Social Impacts due to adverse customer and other constituent impacts associated with unusual wildfire activity in Hawaii, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Maui Electric Company Limited has an ESG Relevance Score of '5' for Customer Welfare - Fair Messaging, Privacy & Data Security due to the uncertainty on involvement of HECO's equipment in sparking the Maui wildfires and the devastation caused to its customers, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Maui Electric Company Limited has an ESG Relevance Score of '5' for Exposure to Environmental Impacts due to heightened risk from wildfires and the uncertainty on utility-sparked wildfires, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

Maui Electric Company Limited has an ESG Relevance Score of '5' for Exposure to Social Impacts due to adverse customer and other constituent impacts associated with unusual wildfire activity in Hawaii, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in implicitly lower ratings.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ���������ֳ�'s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ���������ֳ�'s ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.

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APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)

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