Hawaiian Electric Industries: Global settlement payment structure and financial liquidity impact 2025

Global Settlement Liability: Breakdown of HEI’s $1. 99 Billion Tort Obligation

As of March 2026, Hawaiian Electric Industries (HEI) faces a confirmed tort liability of **$1. 99 billion** arising from the August 2023 Maui wildfires. This figure represents approximately 49% of the total **$4. 037 billion** global settlement agreement finalized in August 2024 to resolve claims from individual plaintiffs, class members, and public entities. The liability structure is rigid, front-loaded, and contingent on specific judicial milestones that have shifted payment timelines into late 2026.

Settlement Structure and Installment Schedule

The $1. 99 billion obligation is not a lump-sum payment a structured liability payable in four equal annual installments. The agreement credits HEI with **$75 million** previously contributed to the One ‘Ohana Initiative, a relief fund established for victims’ families. The remaining principal is divided into four tranches of approximately **$478. 75 million** each. While the original agreement targeted the installment for the fourth quarter of 2025, procedural delays and outstanding appeals regarding insurance subrogation rights have pushed the start date. As of the Q4 2025 earnings call in February 2026, HEI management confirmed the payment is projected for the **second half of 2026**.

2025 Liquidity Mobilization and Debt Issuance

Throughout 2025, HEI executed aggressive financial maneuvering to liquidity-proof its balance sheet against the looming tranche. The company reported **net income of $123. 1 million** for the full year 2025, a sharp reversal from the $1. 4 billion net loss in 2024. This recovery was driven not by operational windfalls by the stabilization of wildfire-related expenses and the crystallization of the settlement liability. To prepare for the initial $478. 75 million outflow, HEI undertook two major capital actions in late 2025: * **Utility Debt Issuance:** The company successfully issued **$500 million** in new utility-level debt. * **Credit Facility Expansion:** The revolving credit facility was upsized to **$600 million** to provide a backstop for operational needs while cash is ring-fenced for the settlement. By December 31, 2025, HEI reported a liquidity position of **$1. 6 billion**, comprising $502 million in unrestricted cash ($486 million at the utility level, $16 million at the holding company) and $1. 1 billion in available credit capacity. This “war chest” covers the settlement installment, isolating the immediate liquidity risk to subsequent years.

The Insurance Subrogation Condition

The execution of the settlement remains legally tethered to the resolution of subrogation claims. Insurance carriers, having paid out over $2. 3 billion in property claims, sought to recover these funds from the settlement pool. The global agreement explicitly bars such “clawback” actions against HEI and other defendants. In August 2024, Circuit Judge Peter Cahill ruled that insurers could not pursue subrogation liens against the settlement funds. yet, insurers appealed this ruling to the Hawaii Supreme Court. As of March 5, 2026, the final resolution of these appeals is the primary bottleneck preventing the release of the payment. HEI has stated that no funds be disbursed until these claims are extinguished with prejudice, ensuring the $1. 99 billion cap remains the absolute ceiling of their liability.

“The agreement is conditioned on a resolution of the claims of the insurance companies that have paid claims for property loss and other damages, with no additional payments from defendants.” , HEI Settlement Statement, August 2024

Shareholder Litigation Settlement

Distinct from the $1. 99 billion tort liability, HEI also resolved shareholder class action and derivative lawsuits in early 2026. The company agreed to a **$47. 75 million** settlement to resolve allegations that executives made misleading statements regarding wildfire mitigation prior to August 2023. Crucially, this specific payout does not impact HEI’s operational liquidity, as it is fully funded by the company’s Directors and Officers (D&O) liability insurance policies.

Composition of the Settlement Installment

As of March 2026, Hawaiian Electric Industries (HEI) maintains a restricted cash balance of $479 million, specifically as the of four annual installments toward its $1. 99 billion global tort settlement. This figure is derived from the total liability of $1. 99 billion, minus the $75 million previously contributed to the One ‘Ohana Initiative, leaving a residual obligation of $1. 915 billion. This amount is amortized over four equal payments of approximately $478. 75 million. The funds are currently sequestered in a Special Purpose Entity (SPE) identified in financial filings as GLST1, a wholly-owned subsidiary established in November 2024 solely to hold these settlement assets.

Funding Mechanics and Equity Dilution

The liquidity required to capitalize GLST1 was generated through a significant equity mobilization event in late 2024. In September 2024, HEI executed the sale of 62. 2 million shares of common stock, raising net proceeds of approximately $557. 7 million. This dilutive action was necessary to segregate the settlement funds without eroding the utility’s operating capital. By November 2024, HEI transferred the calculated tranche of $479 million into GLST1. Consequently, while HEI’s consolidated balance sheet for fiscal year 2025 reflects this cash, it is classified strictly as restricted cash, legally ring-fenced from general corporate purposes, dividend distributions, or operational expenditures.

2025 Liquidity Impact and Balance Sheet Constraints

The segregation of this $479 million creates a distinct bifurcation in HEI’s liquidity profile for 2025. While the consolidated cash position appears strong on paper, the usable liquidity is significantly lower. As of December 31, 2025, HEI reported approximately $502 million in unrestricted cash ($16 million at the holding company and $486 million at the utility level). The $479 million in GLST1 is “trapped” capital, serving as collateral for the settlement agreement providing no relief for the utility’s ongoing capital expenditure requirements, which are projected to reach $550 million to $700 million in 2026. This structure forces HEI to rely on separate financing method, specifically the $500 million utility debt issuance and the sale of American Savings Bank (ASB), to manage operational liquidity and debt service.

Release Triggers and Payment Timeline

The release of funds from GLST1 to the settlement administrator is contingent upon the final resolution of all judicial appeals. Although the Hawaii Supreme Court issued a favorable ruling on February 10, 2026, denying subrogation insurers’ attempts to intervene, the payment timeline has been adjusted. Management the release of this $479 million tranche for the second half of 2026. Until that transfer occurs, the funds remain in the SPE, generating interest income that partially offsets the holding company’s interest expenses, yet remaining inaccessible for any other financial obligation.

“The cash of the installment payment is classified as restricted cash… held in GLST1, a wholly-owned subsidiary created for the specific purpose of holding the installment payment.” , HEI SEC Filing, Form 10-K (2024)

American Savings Bank Divestiture: Liquidity Impact of the $405 Million Sale

On December 31, 2024, Hawaiian Electric Industries (HEI) executed a structural separation from its banking arm, American Savings Bank (ASB), selling a 90. 1% stake to a consortium of independent investors. The transaction, valued at $450 million, generated $405 million in immediate cash proceeds for HEI. This liquidity event serves as a foundational component of HEI’s strategy to manage its $1. 99 billion liability arising from the Maui wildfire global settlement.

Transaction Mechanics and Cash Allocation

The divestiture involved the sale of the majority interest to a group comprising ASB’s management team and other investors, with no single entity acquiring more than 9. 9% ownership. HEI retained a minority 9. 9% non-controlling stake. Management directed the $405 million cash infusion primarily toward reducing holding company debt. This debt reduction is not a direct payment to wildfire victims a balance sheet restructuring maneuver designed to free up borrowing capacity. By lowering existing use, HEI aims to secure more favorable terms for the debt and equity financing required to fund the actual settlement installments.

Impact on Settlement Liquidity

The sale of ASB removes HEI from the regulatory constraints of being a savings and loan holding company, simplifying its capital structure ahead of the settlement payouts. The financial timeline for these payouts has shifted:

As of early 2026, legal appeals regarding insurance subrogation have delayed the commencement of the settlement payments. Consequently, the installment of approximately $479 million, originally projected for mid-2025, is expected in the second half of 2026. The $405 million from the ASB sale provides a, stabilizing HEI’s credit profile during this interim period while the company prepares to problem new debt or equity to cover the initial settlement tranche.

Strategic Solvency

The divestiture signals a definitive pivot to a pure-play utility model. While the $405 million covers less than 21% of the total settlement obligation, its primary function is to preserve solvency. Without this cash injection and the subsequent debt reduction, HEI would face higher costs of capital when accessing markets to fund the $1. 99 billion liability. The move trades a steady stream of banking dividends for the immediate capital flexibility needed to navigate the massive litigation payout.

SECTION 4 of 22: Q4 2025 Balance Sheet: Unrestricted Cash Reserves and Burn Rate Metrics

Liquidity Stabilization Post-ASB Divestiture and Settlement Deferral

As of December 31, 2025, Hawaiian Electric Industries (HEI) reported a stabilized liquidity position, driven by the strategic divestiture of American Savings Bank (ASB) and the deferral of the global settlement installment. The company closed the fourth quarter with $502 million in total unrestricted cash reserves, split between the holding company and the utility. This figure excludes the $479 million restricted cash tranche held in a bankruptcy-remote Special Purpose Entity (SPE) for the initial tort payment.

The execution of the ASB sale on December 31, 2024, which generated $405 million in net cash proceeds, proved pivotal in mitigating “going concern” risks throughout 2025. These funds were primarily allocated to reducing holding company debt, so freeing up credit capacity. Consequently, HEI ended 2025 with record total liquidity of approximately $1. 6 billion, comprising unrestricted cash and $1. 1 billion in available credit facility capacity.

Key Financial Inquiries: Q4 2025 Status

Q1: What is HEI’s total unrestricted cash balance?
A: $502 million (Consolidated).

Q2: How much cash is held at the Holding Company level?
A: $16 million.

Q3: How much cash is held at the Utility level?
A: $486 million.

Q4: What was the total Capital Expenditure (CapEx) for 2025?
A: $368 million.

Q5: How does this compare to 2024 CapEx?
A: Increased from $347 million in 2024.

Q6: What is the projected CapEx for 2026?
A: $550 million to $700 million.

Q7: When is the $479 million settlement payment due?
A: Deferred to the second half of 2026 (pending appeal resolutions).

Q8: Did the utility pay a dividend to HEI in Q4 2025?
A: Yes, the Board approved a $10 million dividend.

Q9: What is the status of the “Going Concern” warning?
A: Mitigated and removed as of November 2024.

Q10: How much credit capacity is currently available?
A: Approximately $1. 1 billion.

Q11: What was the Utility’s Core Net Income in Q3 2025?
A: $39. 6 million.

Q12: How much debt did the utility problem in 2025?
A: $500 million in unsecured debt (September 2025).

Q13: What is the primary driver of increased O&M expenses?
A: Wildfire mitigation programs and legal/consulting fees.

Q14: How much did the ASB sale contribute to 2025 liquidity?
A: $405 million (received Dec 31, 2024).

Q15: Is the $479 million restricted cash included in the $1. 6B liquidity figure?
A: No, it is segregated.

Q16: What is the 2025 renewable portfolio standard achievement?
A: 37%.

Q17: What is the estimated total CapEx for 2026-2028?
A: $1. 8 billion to $2. 4 billion.

Q18: How did the Q3 2025 net income compare to forecasts?
A: Beat forecasts by 5. 56% ($0. 19 EPS vs $0. 18 expected).

Q19: What is the status of the Pacific Current asset review?
A: Ongoing; $35. 2 million impairment recorded in Q3 2024.

Q20: Has the insurance subrogation problem been resolved?
A: Hawaii Supreme Court decision in Feb 2026 favored the settlement, final procedural steps remain.

Unrestricted Cash Reserves vs. Burn Rate Analysis

The between HEI’s holding company cash ($16 million) and the utility’s cash ($486 million) highlights the structural firewall maintained to protect ratepayer funds from parent-level liabilities. While the holding company operates with a lean cash buffer, it relies on the reinstated utility dividends, $10 million declared in Q4 2025, to service parent-level debt and operational costs.

2025 Cash Burn Metrics:
The utility’s cash burn accelerated in 2025 due to the aggressive implementation of the Wildfire Safety Strategy. Total capital expenditures rose to $368 million, a 6% increase year-over-year. Operational and Maintenance (O&M) expenses also pressured margins, with Utility Core Net Income dropping to $39. 6 million in Q3 2025 from $43. 7 million in the prior year period. This compression from higher insurance premiums, vegetation management costs, and non-deferrable legal fees.

Settlement Payment Deferral and 2026 Outlook

A serious factor in the Q4 2025 liquidity profile is the timing of the $479 million settlement installment. Originally anticipated for late 2025, the payment timeline shifted to the second half of 2026 due to extended appellate proceedings regarding insurance subrogation rights. This deferral allowed HEI to retain the restricted cash on its balance sheet throughout 2025, artificially inflating the gross asset base while accruing interest income that partially offset parent-level interest expenses.

The company utilized this window to execute a $500 million unsecured debt issuance in September 2025. These funds, combined with the ASB proceeds, pre-funded the 2026 capital program, which is projected to surge to between $550 million and $700 million. This “front-loading” of liquidity ensures that the utility can maintain its grid hardening pace even when the settlement cash outflow occurs in 2026.

Revolver Capacity Expansion and Structural Split

As of December 31, 2025, Hawaiian Electric Industries (HEI) and its utility subsidiary, Hawaiian Electric Company (HECO), operate under a consolidated unsecured revolving credit structure totaling $600 million. This capacity represents a strategic expansion executed in September 2025, increasing the aggregate commitment from the previous $375 million limit. The facility is bifurcated to ring-fence utility operations from holding company liabilities, with $300 million allocated to HEI (HoldCo) and $300 million allocated strictly to HECO (Utility).

The September 2025 amendment, led by a syndicate of banks including Wells Fargo and Bank of America, extended the facility’s maturity to May 14, 2027. This extension was serious for stabilizing HEI’s capital structure ahead of the initial global settlement payments scheduled for 2026. Unlike typical distress financing, these facilities do not contain credit rating triggers that would automatically accelerate repayment or block access to funds in the event of a downgrade, a important provision given HEI’s speculative-grade credit profile (Ba3/BB- range) throughout 2025.

Utilization Rates and Liquidity Preservation

even with the massive tort liabilities facing the enterprise, HEI maintained a conservative draw rate on its revolvers through Q4 2025. Following the successful issuance of $500 million in unsecured utility debt in September 2025, HECO used the proceeds to pay down outstanding revolver balances that had been drawn for wildfire mitigation capital expenditures.

As of year-end 2025, the utilization status of the credit facilities stood as follows:

Analyst Note: The near-zero utilization at the utility level indicates that HECO is funding its $368 million 2025 capital program through operating cash flow and the recent bond issuance, reserving the revolver strictly as a backstop for the 2026 settlement installments.

Covenant Compliance and Financial Flexibility

Access to the full $600 million capacity is contingent upon strict adherence to financial covenants, which were renegotiated during the September 2025 expansion. The amended credit agreement requires HEI and HECO to maintain a non-consolidated capitalization ratio (debt-to-capitalization) not exceeding 65%. As of the Q4 2025 compliance certificate, HECO reported a capitalization ratio of approximately 58%, providing a 700-basis point cushion.

Crucially, the banks waived the “Material Adverse Change” (MAC) representation for new borrowings related to the Maui wildfires. This waiver ensures that ongoing litigation developments or chance secondary settlements cannot be used by lenders to freeze liquidity, provided the company remains solvent.

Secondary Liquidity: The Accounts Receivable Facility

Beyond the primary $600 million revolver, HECO maintains access to a separate $250 million asset-based lending (ABL) facility secured by customer accounts receivable. This facility, which matures in 2026, provides daily working capital management. Throughout 2025, this ABL facility remained largely undrawn, serving as a tertiary liquidity. When combined with the $600 million revolver and $502 million in unrestricted cash, HEI’s total liquidity position reached $1. 6 billion entering 2026, the highest level in the company’s history, explicitly engineered to absorb the initial settlement tranche without triggering a liquidity emergency.

The Convergence of Liability: 2027-2028 Maturity Wall

As Hawaiian Electric Industries (HEI) navigates the post-settlement, the fiscal years 2027 and 2028 represent a serious “refinancing cliff” where operational liquidity facilities, tort liability installments, and legacy bond maturities converge. While the company stabilized its immediate liquidity position by December 31, 2025, reporting $1. 6 billion in total available liquidity, the structure of its debt obligations creates a concentrated period of financial pressure beginning in the second quarter of 2027.

The “cliff” is not formed by a single massive bond redemption, rather the simultaneous expiration of primary credit lifelines and the crystallization of the second and third tranches of the Maui wildfire settlement. Specifically, the expiration of the $600 million revolving credit facility and the $250 million accounts receivable (AR) facility in mid-2027 removes the structural backstop that HEI relies on for working capital and interim settlement funding.

Detailed Maturity Schedule (2026-2028)

The following schedule aggregates confirmed debt instruments, credit facility expirations, and court-mandated settlement payments. Data reflects the capital structure as of December 31, 2025, following the issuance of $500 million in senior notes in September 2025.

Credit Facility Expiration Risks

The most acute risk in 2027 is the expiration of the $600 million revolving credit facility on May 14, 2027. This facility, expanded from $375 million in September 2025, serves as the primary liquidity for the utility. Unlike term debt, which is fully funded upfront, the revolver represents access to capital. Its expiration does not require a cash repayment if undrawn, it eliminates the safety net required by rating agencies to maintain the SGL-2 (Speculative Grade Liquidity) rating.

Simultaneously, the $250 million asset-based lending (ABL) facility, secured by utility accounts receivable, faces a renewal hurdle in mid-2027. Originally approved in June 2024 with a 364-day term and extension options up to three years, this facility is important for smoothing operational cash flow volatility. If HEI cannot renew these facilities due to credit deterioration or market conditions, the company would lose access to $850 million in chance liquidity just as the second settlement payment becomes due.

Cost of Capital and Refinancing Economics

The refinancing environment for HEI has fundamentally shifted from the era of near-zero interest rates. The debt maturing in 2028 carries a weighted average coupon of approximately 4. 1%, with tranches as low as 2. 48%. In contrast, the $500 million senior notes issued in September 2025 priced at 6. 00%, reflecting the company’s non-investment grade status and the “high yield” risk premium demanded by investors.

“The fear of refinancing at 8, 9% instead of 3, 4% is very real… The refinancing cliff could trigger defaults, distressed asset sales, and even banking sector stress.” , Market Analysis on 2027 Corporate Debt Walls

Replacing the maturing 2028 notes and funding the settlement installments with new debt at current market rates (projected between 6. 5% and 7. 5% for BB-rated issuers in 2027) significantly increase interest expense. For every $100 million refinanced, annual interest costs are projected to rise by approximately $2. 5 million to $3. 5 million, directly pressuring net income and the utility’s ability to keep customer rates stable.

Settlement Liability Integration

The $1. 99 billion global settlement is structured in four annual installments of roughly $479 million. While the payment (H2 2026) is covered by restricted cash reserves, the 2027 and 2028 payments must be funded from operations or new financing.

This creates a “double use” problem: HEI must borrow to pay the settlement installments at the exact moment its low-cost legacy debt matures. The 2027 settlement payment coincides with the revolver expiration, creating a liquidity pinch point. Management has indicated a preference for convertible debt to fund these later tranches, a strategy that avoids immediate cash interest introduces significant shareholder dilution risk.

Mitigation Strategies and 2025 Actions

HEI executed preemptive moves in late 2025 to soften the 2027 cliff. The issuance of $500 million in 6. 00% Senior Notes due 2033 pre-funded a portion of the upcoming capital needs, pushing that principal obligation past the danger zone. also, the sale of American Savings Bank (ASB) provided a one-time cash infusion used to pay down short-term commercial paper, clearing the decks for the settlement liabilities.

yet, the “going concern” risk remains tethered to the successful renegotiation of the credit facilities before May 2027. Without a confirmed extension of the $600 million revolver by early 2027, the company’s liquidity metrics would likely breach the covenants required by its remaining bondholders, chance triggering cross-default clauses.

Structural Shift in Capitalization

The financing of the Maui wildfire settlement necessitated a radical restructuring of Hawaiian Electric Industries’ (HEI) equity base, culminating in a massive dilution event in late 2024. To meet its immediate liquidity obligations for the settlement tranche, HEI executed a public offering that fundamentally altered its ownership structure. As of March 2026, HEI’s total common shares outstanding reached 172. 6 million, a 56. 6% increase from the 110. 3 million shares outstanding in June 2024. This expansion provided the serious capital required to fund the $478 million initial settlement payment permanently diluted the earnings chance for pre-emergency shareholders.

September 2024 Public Offering Mechanics

The primary driver of this dilution was the public offering priced on September 23, 2024, and closed on September 25, 2024. Facing a liquidity crunch and the impending settlement confirmation, HEI issued 54, 054, 054 new shares of common stock at a public offering price of $9. 25 per share, a valuation significantly depressed by the lingering liability uncertainty.

Demand for the issuance allowed underwriters to fully exercise their option to purchase an additional 8, 108, 108 shares, bringing the total issuance to 62, 162, 162 shares. The transaction generated net proceeds of approximately $558 million. These funds were immediately ring-fenced to satisfy the installment of the $1. 99 billion global settlement, which required a $478 million cash infusion by mid-2025. Without this equity injection, HEI would have absence the unrestricted cash necessary to meet its tort obligations without breaching minimum liquidity covenants on its revolving credit facilities.

At-The-Market (ATM) Equity Program

In parallel with the block offering, HEI established a $250 million At-The-Market (ATM) equity program on September 19, 2024. Unlike the fixed-price public offering, this facility allows the company to sell shares incrementally into the open market at prevailing prices.

While the bulk of the 2024-2025 share count expansion resulted from the September public offering, the ATM program remains a serious liquidity valve. Regulatory filings from March 2, 2026, confirm the program remains active, with updated tax disclosures indicating HEI retains the capacity to raise further equity if settlement payment schedules accelerate or operational cash flows face unexpected headwinds. As of early 2026, the ATM facility serves as a backstop rather than a primary funding source, preserving the option to raise capital without the discount associated with large block trades.

Dilution Impact on Earnings Per Share (EPS)

The expansion of the share count has created a mathematical headwind for HEI’s earnings per share (EPS) recovery. For the full year 2025, HEI reported net income of $123 million. Under the pre-dilution share count of 110. 3 million, this would have translated to an EPS of approximately $1. 11. yet, distributed across the expanded base of 172. 6 million shares, the reported EPS fell to $0. 71.

This 36% dilution in EPS power means that even as HEI’s operational net income stabilizes, shareholder returns on a per-share basis remain suppressed. The stock price recovery to the $15. 49 range in March 2026 reflects a market capitalization of approximately $2. 67 billion, suggesting investors have priced in the dilution and are valuing the company based on its regulated utility rate base growth rather than near-term earnings parity with historical levels.

Capital Structure Comparison: Pre- vs. Post-Offering

The following table illustrates the dramatic shift in HEI’s equity profile before and after the settlement financing maneuvers.

Analyst Note: The between the 56% share count increase and the 106% market cap increase indicates a significant repricing of risk. Investors in 2026 are paying a premium for the “survival” of the entity, accepting the diluted equity stake in exchange for the removal of bankruptcy risk that plagued the stock in mid-2024.

Strategic for Future Financing

The successful execution of the September 2024 offering at $9. 25, and the subsequent stock price appreciation to ~$15. 50, validates management’s strategy to front-load the dilution. By securing the $558 million when the stock was under extreme pressure, HEI eliminated the “liquidity cliff” risk for the settlement payment.

yet, the heavy reliance on equity financing has increased the cost of capital for future projects. With no dividend payments to support the stock, HEI’s equity currency is entirely dependent on capital appreciation and the restoration of the utility’s credit ratings. The active ATM program suggests that while the acute emergency phase has passed, the company prepares to use equity markets to manage the remaining $1. 5 billion in settlement installments due between 2026 and 2029, chance leading to further, albeit more gradual, dilution.

Active ATM Capacity and 2026 Utilization Strategy

As of March 5, 2026, Hawaiian Electric Industries (HEI) retains approximately $250 million in remaining capacity under its At-The-Market (ATM) equity offering program, originally filed on September 19, 2024. With the settlement installment of $479 million scheduled for the second half of 2026, the company faces an immediate liquidity requirement. Management has indicated that this ATM facility serve as a primary lever to fund the gap between operating cash flow and the combined load of settlement liabilities and elevated capital expenditures.

The mechanics of the 2026 issuance strategy rely on the current stock price stability around the $15. 50 mark. To raise the full $250 million authorized, HEI would need to problem approximately 16. 1 million new shares. This represents a dilution of roughly 9. 3% based on the market capitalization of $2. 67 billion reported in early March 2026. Unlike a traditional secondary offering, the ATM structure allows HEI to trickle shares into the market to minimize immediate price shock, a necessary tactic given the stock’s sensitivity to wildfire-related news.

Projected Capital Sources vs. Uses (2026)

The following table outlines the projected capital shortfall for fiscal year 2026 and the specific role of equity issuances in closing the deficit.

The 2027-2028 Equity Cliff

While the 2026 funding gap appears manageable through the exhaustion of the current ATM and credit facilities, the outlook for 2027 and 2028 presents a steeper challenge. Capital expenditure guidance increases to a range of $600 million to $850 million annually for this period, driven by the Public Utilities Commission’s approved wildfire safety strategy and grid hardening mandates. Simultaneously, the settlement structure requires three subsequent annual installments, keeping cash outflows elevated.

The exhaustion of the $250 million ATM in 2026 force HEI to seek new equity authorization. Financial modeling suggests a requirement for an additional $300 million to $400 million in equity capital between 2027 and 2028 to maintain a debt-to-equity ratio acceptable to credit rating agencies. Without this fresh equity, the company risks breaching covenants on its upsized $600 million revolver or facing a downgrade that would increase the cost of its $500 million utility debt.

“The convergence of rising CapEx and fixed settlement payments creates a structural deficit that operating cash flow alone cannot cover. Investors must anticipate a second, larger equity program to be filed by mid-2027.”

Dilution Trajectory and Shareholder Impact

The cumulative effect of these capital calls points to a significant reshaping of HEI’s ownership structure. Following the September 2024 equity issuance which already expanded the share count, the projected 2026-2028 issuances further dilute existing shareholders. If the stock price remains suppressed due to the overhang of these known capital needs, the number of shares required to raise the necessary funds increases, creating a “dilution spiral” risk.

Current projections indicate the total outstanding share count could rise by 18% to 22% by year-end 2028 compared to 2025 levels. This dilution directly impacts Earnings Per Share (EPS) recovery. While net income stabilized in 2025 at $123. 1 million ($0. 71 per share), the increasing denominator means that even if core utility earnings grow, EPS growth lag significantly. The dividend, currently set at a nominal $0. 01 per quarter (or suspended depending on covenant restrictions), is unlikely to see meaningful restoration until this capital raising pattern concludes.

Regulatory and Market Constraints

HEI’s ability to execute these ATM issuances depends on maintaining its “shelf eligibility” with the SEC. The removal of the “going concern” warning in early 2025 was a serious step, allowing the company to access capital markets without the severe discounts associated with distressed issuers. yet, the market’s appetite for utility equity is finite. The $250 million target for 2026 represents nearly 10% of the company’s daily trading volume over a full year, a level of supply that likely cap any upside momentum in the stock price.

also, the sale of the remaining 9. 9% stake in American Savings Bank (ASB), targeted for calendar year 2026, provides a one-time liquidity injection of approximately $45 million. This is a non-repeatable event. Once this asset is liquidated, HEI becomes a pure-play utility with no non-regulated subsidiaries to harvest for cash, leaving equity issuance and rate base growth as the sole levers for long-term capital management.

SECTION 9 of 22: Insurance Recovery Limits: Exhaustion of Liability Policies A and B

Liability Tower Composition and the $165 Million Cap

As of the 2025 fiscal reporting period, Hawaiian Electric Industries (HEI) has fully exhausted its commercial general liability (GL) insurance tower, which provided a total aggregate limit of $165 million for the 2023 policy year. This coverage structure, frequently bifurcated in industry terms into primary (Policy A) and excess (Policy B), proved insufficient to cover the magnitude of the Maui wildfire tort claims. The $165 million limit represents less than 8. 3% of HEI’s total confirmed $1. 99 billion settlement obligation, forcing the utility to self-fund the remaining $1. 825 billion liability through debt financing, equity issuance, and asset divestitures.

The liability tower was structured to cover third-party bodily injury and property damage. Unlike the property insurance policies, which carried a $500 million limit were restricted by a $5 million sublimit for transmission and distribution infrastructure, the liability policies (A and B) were the sole insurance method available to offset victim compensation claims. By the fourth quarter of 2025, HEI’s financial statements confirmed that the entire $165 million had been recognized as a receivable or cash recovery, “tapping out” the insurers’ obligations.

Exhaustion method and Settlement Integration

The exhaustion of Policies A and B was formalized through the global settlement framework finalized in August 2024 and legally solidified by the Hawaii Supreme Court’s ruling in February 2025. The settlement agreement stipulated that the $1. 99 billion contribution from HEI was “net of insurance,” meaning the insurers would pay their full policy limits directly into the settlement fund.

Crucially, the February 2025 court ruling blocked insurance carriers from pursuing subrogation claims against HEI. Insurers who had paid out property claims to homeowners sought to sue HEI separately to recover those costs. The court’s decision to disallow these independent actions was a pivot point that allowed the $4 billion global settlement to proceed. Consequently, the $165 million from HEI’s liability insurers was released directly to the settlement administrators, absolving the carriers of further duty to defend or indemnify the utility for the August 2023 events.

2025 Financial Impact: Net-of-Insurance Accounting

In its 2025 financial filings, HEI utilized “net-of-insurance” accounting to report its wildfire liabilities. For example, in the third quarter of 2025, the company recorded a $40 million insurance receivable, reflecting a tranche of the liability coverage being liquidated to offset accrued tort expenses. This accounting treatment reduced the immediate cash burn on the balance sheet highlighted the finite nature of the insurance buffer.

The exhaustion of these policies leaves HEI with zero remaining transfer of risk for the 2023 wildfire claims. All future payments related to the four-year settlement installment plan, commencing in mid-2025, must be funded exclusively from the company’s liquidity sources, including the $405 million proceeds from the American Savings Bank sale and the suspension of common stock dividends.

Directors and Officers (D&O) Coverage Distinction

While the general liability tower (Policies A and B) was exhausted by tort claims, HEI maintained separate Directors and Officers (D&O) insurance. In early 2026, HEI announced that shareholder class action and derivative lawsuits were settled and “fully funded by insurance proceeds.” This indicates that the D&O policies remained intact and separate from the $165 million general liability limit, protecting the corporate entity from shareholder litigation costs without eroding the funds available for wildfire victims. yet, the D&O proceeds cannot be applied to the $1. 99 billion tort liability, maintaining the strict separation between shareholder defense and victim compensation.

Shareholder Litigation: Terms of the $47. 75 Million Securities Class Action Settlement

On March 3, 2026, the U. S. District Court for the Northern District of California granted preliminary approval to a $47. 75 million settlement resolving the consolidated securities class action lawsuit against Hawaiian Electric Industries (HEI). The litigation, filed shortly after the August 2023 Maui wildfires, alleged that HEI and its executive officers made materially false and misleading statements regarding the company’s wildfire mitigation and de-energization capabilities. This agreement extinguishes a significant legal liability without impacting the company’s operational liquidity, as the payment is fully funded by insurance proceeds.

Settlement Structure and Financial Impact

The settlement agreement stipulates a total cash payment of $47. 75 million to the settlement class. HEI confirmed in its Q3 2025 and subsequent financial filings that the entire settlement amount is covered by its Directors and Officers (D&O) liability insurance policies. Consequently, the company not draw from its unrestricted cash reserves, the $479 million restricted cash tranche for tort liability, or its $600 million revolving credit facility to satisfy this obligation.

This insurance-funded structure preserves HEI’s capital for the $1. 99 billion tort settlement and ongoing infrastructure hardening. The company recorded an insurance recovery receivable of $47. 8 million in the third quarter of 2025, neutralizing the expense on its income statement. The net financial impact on HEI’s 2025-2026 cash flow is zero.

Class Definition and Release of Claims

The settlement defines the eligible class as all persons and entities who purchased or otherwise acquired HEI securities between February 28, 2019, and September 4, 2023. The extended class period covers the timeframe during which plaintiffs argued HEI artificially inflated its stock price by touting safety measures, such as vegetation management and grid resilience, that were allegedly insufficient to prevent the Lahaina catastrophe.

By accepting the settlement, class members release HEI and the named individual defendants from all claims related to the securities violations alleged in the complaint. This “release of claims” prevents future shareholder litigation based on the same factual predicates, closing a major chapter of the post-fire legal.

Procedural Status: The U. S. District Court granted preliminary approval on March 3, 2026. A Final Fairness Hearing is scheduled for August 2026 to formally close the matter.

Comparative Analysis of Settlement Terms

The $47. 75 million payout represents a significant recovery compared to median securities class action settlements in the utility sector. Data from 2025 indicates that the median settlement value for securities cases was approximately $17 million. HEI’s settlement amount reflects the severity of the stock drop, shares fell over 60% in the wake of the fires, and the high of the allegations.

Allegations Resolved

The plaintiffs’ consolidated complaint identified 25 specific statements made by HEI executives during earnings calls and in ESG reports that purportedly misrepresented the utility’s readiness for extreme weather events. Key allegations included:

• De-energization: Claims that HEI had a strong “Public Safety Power Shutoff” program, which plaintiffs argued was non-existent or non-functional at the time of the fires.
• Vegetation Management: Assertions that the company maintained rigorous clearance schedules, which were contradicted by post-fire reports of invasive grass buildup.
• Risk Disclosure: Allegations that HEI downplayed the specific risk of wind-driven wildfires in its annual 10-K filings.

HEI has denied all wrongdoing and liability in the settlement agreement. The company maintains that its disclosures were accurate based on the information available at the time. The settlement allows HEI to avoid the uncertainty and expense of a jury trial, which could have exposed the company to damages exceeding the policy limits of its insurance coverage.

Market Reaction and Investor Sentiment

Following the announcement of the preliminary settlement in January 2026, HEI’s stock price showed modest stabilization. Institutional investors viewed the resolution as a positive step toward removing the “legal overhang” that had depressed the stock’s valuation since August 2023. With the securities litigation resolved and the tort liability capped at $1. 99 billion, the market’s focus has shifted to the company’s regulatory recovery method and the execution of its wildfire safety strategy.

SECTION 11 of 22: Operational Cash Flow: Utility Dividend Upstreaming to Holding Company

20-Point Fan-Out: Utility-to-Holding Company Cash Mechanics

1. What is the primary method for HEI to access utility cash? Common stock dividends paid by Hawaiian Electric Company (the utility) to Hawaiian Electric Industries (the parent).
2. What was the status of this dividend in 2024? Completely suspended to preserve cash for wildfire liabilities.
3. When did upstreaming resume? Q1 2025.
4. What is the current quarterly upstream rate? $10 million per quarter.
5. What is the annualized upstream total for 2025? $40 million.
6. How does this compare to utility core net income? The $40 million payout represents approximately 22. 5% of the utility’s $177. 5 million core net income for 2025.
7. Why is the payout ratio so low? The utility must retain earnings to fund a $550 million+ CapEx budget for 2026 and maintain liquidity for settlement payments.
8. Does HEI pay dividends to public shareholders? No. The dividend to common shareholders remains suspended (0. 00% yield) as of March 2026.
9. What does HEI use the upstreamed cash for? Primarily to service holding company debt and cover corporate operating expenses.
10. Did the ASB divestiture impact this flow? Yes. With American Savings Bank sold, HEI is almost entirely dependent on the utility for operational cash flow.
11. What regulatory body oversees this transfer? The Hawaii Public Utilities Commission (PUC).
12. Are there “ring-fencing” restrictions? Yes. The PUC prohibits the utility from loaning funds to HEI and can restrict dividends if capital adequacy is threatened.
13. What was the utility’s unrestricted cash position at year-end 2025? $486 million.
14. What was the holding company’s unrestricted cash position at year-end 2025? Only $16 million, highlighting the urgency of the upstream dividends.
15. How much debt did HEI pay down in 2025? Approximately $384 million using ASB sale proceeds, reducing interest pressure.
16. Is the utility borrowing to pay this dividend? No. The dividend is funded from current operations, though the utility is issuing debt for CapEx.
17. What is the 2026 CapEx requirement? $550 million to $700 million.
18. Does the $1. 99 billion settlement liability affect upstreaming? Yes. It forces the utility to minimize upstreaming to only what is strictly necessary for HEI’s survival.
19. What is the “Going Concern” status? While alleviated by the settlement framework, liquidity remains tight, necessitating strict cash controls.
20. the upstream dividend increase in 2026? Unlikely. Management has signaled a need to prioritize wildfire safety investments and settlement funding over increased transfers.

Resumption of Upstream Dividends: The $40 Million Lifeline

After a serious suspension period throughout 2024, Hawaiian Electric Company resumed dividend payments to its parent, Hawaiian Electric Industries (HEI), in the quarter of 2025. This resumption marked a pivotal shift in the company’s internal liquidity management. Throughout 2024, the “ring-fencing” of utility cash was absolute; the utility retained 100% of its earnings to reserves against the looming $1. 99 billion tort liability.

In 2025, the Board of Directors authorized a conservative $10 million quarterly dividend, totaling $40 million for the fiscal year. This transfer is not a return to capital for public shareholders, HEI’s public dividend remains at zero, rather a survival method for the holding company. With the divestiture of American Savings Bank (ASB) in December 2024, HEI lost a significant stream of diversified income. The holding company relies almost exclusively on these utility transfers to service its remaining debt obligations and fund corporate overhead.

Financial Friction: CapEx vs. Upstreaming

The resumption of dividends creates a direct tension between the holding company’s liquidity needs and the utility’s capital expenditure (CapEx) requirements. For 2025, the utility reported core net income of $177. 5 million. By upstreaming only $40 million, the utility retained approximately $137. 5 million. yet, this retained amount is insufficient to cover the utility’s massive infrastructure costs.

For 2026, the utility has projected a CapEx budget of $550 million to $700 million, driven by the urgent need for wildfire hardening, grid modernization, and renewable integration. The gap between retained earnings and CapEx requirements significant external financing, primarily through the issuance of utility-level debt. This places the PUC in a serious oversight role: regulators must ensure that dividend upstreaming does not bleed the utility to the point where it cannot afford safety upgrades or is forced to problem debt at unsustainable rates.

Regulatory Constraint: The Hawaii Public Utilities Commission maintains strict oversight under the “ring-fencing” doctrine. The utility is prohibited from loaning funds to the parent company. Consequently, the dividend declaration is the only legal channel for moving cash to HEI. The fixed $10 million quarterly figure suggests a negotiated ceiling intended to keep HEI solvent without imperiling the utility’s operational integrity.

Comparative Cash Flow Analysis: 2024 vs. 2025

The following table illustrates the dramatic shift in internal cash flows between the emergency year of 2024 and the stabilization year of 2025. Note the between the utility’s strong cash position and the holding company’s thin liquidity.

Holding Company Solvency and Debt Service

The $16 million unrestricted cash balance at the holding company level as of December 31, 2025, show the fragility of HEI’s standalone position. Without the $10 million quarterly infusion from the utility, HEI would face an immediate liquidity shortfall.

In April 2025, HEI utilized the proceeds from the ASB sale to retire approximately $384 million in holding company debt. This deleveraging was a crucial strategic maneuver, significantly reducing the interest expense load. Had this debt remained on the books, the $40 million annual dividend from the utility would likely have been insufficient to cover interest payments, chance forcing a default at the parent level.

The current structure transforms HEI into a pass-through entity for the time being: utility earnings are filtered up strictly to keep the corporate shell intact and legally compliant, while the bulk of financial resources are ring-fenced at the utility level to deal with the $1. 99 billion settlement liability and the physical reconstruction of the Maui grid.

2026 Outlook: The “Cash Trap” Scenario

Looking ahead to 2026, the utility dividend is expected to remain capped at the $10 million quarterly level. Several factors enforce this “cash trap”:

• Settlement Installments: The tranche of the settlement payment ($479 million) is secured in restricted cash, subsequent payments require fresh capital. The utility cannot afford to increase dividends while saving for these future obligations.
• Credit Rating Pressure: Credit rating agencies (Moody’s, S&P, Fitch) view the retention of capital at the utility as a positive factor for creditworthiness. Increasing the dividend would risk a downgrade, increasing the cost of the debt needed for the $700 million CapEx plan.
• PUC Scrutiny: Any attempt to increase the dividend before the wildfire safety plan is fully funded would likely trigger regulatory intervention.

Therefore, while the resumption of dividends in 2025 signals that the immediate threat of holding company insolvency has passed, the financial conduit between the utility and HEI remains constricted. The era of high-yield payouts is over; the new reality is a functional, minimum-subsistence transfer designed solely to prevent a technical default at the parent company.

2026 Capital Expenditure Surge: The $550 Million Baseline

As of March 2026, Hawaiian Electric Industries (HEI) has operationalized a capital expenditure (CapEx) budget for the fiscal year 2026 ranging from $550 million to $700 million. This figure represents a marked escalation from the $368 million deployed in 2025, driven primarily by the urgent implementation of the Public Utilities Commission (PUC) approved Wildfire Safety Strategy. The $550 million baseline functions as the fiscal floor for the utility’s most aggressive infrastructure hardening campaign in its history, coinciding directly with the commencement of settlement payments.

The 2026 budget integrates the second year of the $400 million Wildfire Mitigation Plan (WMP), which spans 2025 through 2027. While 2025 saw an initial allocation of approximately $120 million, 2026 serves as the peak execution year for physical grid alterations. Regulatory filings confirm that 76% of the WMP capital is allocated strictly to grid hardening, prioritizing the replacement of wood poles with fire-resistant materials and the installation of covered conductors in high-risk zones on Maui, Oʻahu, and Hawaiʻi Island.

Allocation of Capital: Hardening vs. Modernization

The 2026 expenditure profile is distinct from previous years due to its heavy weighting toward physical risk reduction over general maintenance or capacity expansion. The PUC’s Decision and Order No. 42228, issued on December 31, 2025, mandated strict adherence to safety- spending. The following breakdown illustrates the projected allocation of the $550 million minimum budget, incorporating both the WMP and baseline utility operations.

Specific Hardening Projects and Unit Costs

The core of the 2026 hardening effort involves the deployment of covered conductors, insulated power lines designed to prevent sparking if contacted by vegetation or debris. HEI’s filings indicate a target of installing 56 miles of covered conductors across the tri-island service territory by the end of 2027. The 2026 work plan accounts for approximately 25 to 30 miles of this total. Data from the 2025-2027 WMP places the average cost of these installations at $1. 07 million per mile, a figure that includes the necessary structural reinforcement of poles to support the heavier insulated lines.

Beyond conductors, the budget funds the systematic replacement of serious transmission and distribution poles. The utility is executing the $190 million “Climate Adaptation Transmission and Distribution Resilience Program,” originally approved in early 2024, which the hardening of 2, 100 poles on serious circuits. In 2026, crews are focused on “lifeline” circuits serving hospitals, emergency response centers, and water treatment facilities. Undergrounding projects, while more, remain limited due to cost; the 2026 budget allocates funds primarily for strategic undergrounding of select distribution segments where overhead hardening is deemed insufficient to mitigate fire risk.

Liquidity Pressure and Federal Offsets

The convergence of a $550 million capital budget with the $479 million settlement payment obligation in the second half of 2026 creates a severe liquidity. To manage this “capital wall,” HEI uses federal funding to offset direct ratepayer and balance sheet impacts. The utility secured a $95 million grant under the Infrastructure Investment and Jobs Act (IIJA) Grid Resilience and Innovation Partnerships (GRIP) program. This grant requires a 50% match from customers halves the capital load for specific resilience projects executed in 2026.

also, the Puʻuloa Microgrid project on Oʻahu is supported by a separate $40 million federal grant, reducing the net cash outflow for grid stability measures serving military and civilian loads. even with these offsets, the bulk of the $550 million outlay is financed through new debt issuance and operating cash flow. The passage of Senate Bill 897 allows the PUC to approve the securitization of these wildfire safety costs, enabling HEI to problem bonds backed by a dedicated ratepayer surcharge. This method is important for 2026, as it permits the utility to recoup large capital outlays upfront without waiting for a traditional rate case, so preserving the liquidity needed for settlement liabilities.

Situational Awareness and Technology Deployment

A smaller serious fraction of the 2026 budget, approximately $15 million, is dedicated to situational awareness technologies. Following the deployment of 101 weather stations and 135 AI-assisted cameras in 2025, the 2026 plan focuses on integrating these data streams into the system control center. This investment supports the “Public Safety Power Shutoff” (PSPS) program, allowing operators to de-energize lines with greater precision during Red Flag Warning conditions. The 2026 budget also covers the installation of spark-detection sensors in remote areas, a direct response to the ignition vectors identified in the Maui, Olinda, and Kula fires.

The PUC’s approval of this budget came with reporting requirements. HEI must submit quarterly variance reports detailing the specific miles of line hardened and poles replaced against the $550 million spend. This transparency method ensures that the capital surge results in verifiable risk reduction rather than administrative bloat, a key condition for the continued authorization of recovery method through 2027.

Rate Base Recovery: Status of PUC Docket on Wildfire Cost Pass-Throughs

Docket 2025-0156: The $483 Million Mitigation Wedge

As of March 5, 2026, the Hawaii Public Utilities Commission (PUC) has established a definitive firewall between Hawaiian Electric Industries’ (HEI) tort liabilities and its recoverable grid investments. While the $1. 99 billion global settlement remains a shareholder and insurance obligation, the PUC’s Decision and Order No. 42228, issued on December 31, 2025, authorized the implementation of the 2025, 2027 Wildfire Mitigation Plan (WMP). This order allows the utility to track approximately $483 million in net mitigation costs for chance recovery from ratepayers, distinct from the settlement payouts.

The regulatory method for this recovery relies on the “Catastrophic Wildfire Securitization Act” (codified via SB 897 and Act 258 in 2025). This legislation permits Hawaiian Electric to securitize prudent wildfire safety investments, specifically grid hardening, vegetation management, and situational awareness technology, through the issuance of recovery bonds. These bonds, secured by a non-bypassable charge on customer bills, are designed to spread the $483 million cost over a long-term horizon to minimize immediate rate shock.

Regulatory Firewall: “The Commission explicitly bifurcates the financial load: costs associated with the August 8, 2023, negligence claims are excluded from the rate base. Only forward-looking investments deemed ‘used and useful’ for future wildfire prevention are eligible for securitization.” , PUC Decision and Order No. 42228, Dec 31, 2025.

Securitization and Bill Impact Analysis

The approved WMP outlines a capital expenditure strategy focused on high-risk zones, particularly in Maui County. Hawaiian Electric’s filing projects that securitizing these costs result in a tiered rate increase beginning in mid-2026. The utility estimates the monthly bill impact for a typical residential customer to be $1. 00 on Oʻahu, $3. 00 on Hawaiʻi Island, and $5. 00 on Maui. These figures assume the successful issuance of low-interest recovery bonds, which carry a higher credit rating than HEI’s corporate debt due to the statutory legislative backing.

The in cost allocation reflects the geographic concentration of the hardening efforts. Approximately $181 million (37% of the total budget) is allocated specifically to Maui County for the installation of covered conductors and the deployment of AI-driven camera networks. The PUC has mandated that these costs be tracked in a separate regulatory asset account, subject to an annual prudence review before final inclusion in the recovery bond issuance.

Consumer Advocate and Intervenor Challenges

even with the WMP’s approval, the Division of Consumer Advocacy (DCA) has raised significant objections regarding the technical rigor of HEI’s spending plan. In a report filed August 20, 2025, the DCA’s consultant, Jensen Hughes, identified “serious deficiencies” in the utility’s risk modeling and equity considerations. The DCA argued that while the safety goals are valid, the utility failed to demonstrate that the proposed $483 million spend represents the most cost- method to risk reduction.

The Consumer Advocate recommended that the PUC “accept with conditions” rather than fully approve the plan, pushing for strict performance metrics. Consequently, the PUC’s December order imposed a requirement for HEI to submit a “timeline for addressing serious problem” by April 2026. This conditional approval creates a risk that specific tranches of the $483 million could be disallowed if the utility fails to meet the Commission’s enhanced transparency standards.

Insurance Coverage Disputes and Net Recoverable Amounts

The net amount sought for recovery ($483 million) is calculated after deducting anticipated federal grants and insurance proceeds. yet, this calculation is currently threatened by active litigation. On February 13, 2026, Hawaiian Electric filed suit against four of its property insurers, XL Insurance America, Allianz Global Risks, Princeton Excess, and General Security Indemnity, over an $80 million coverage dispute (Case No. 1: 26-cv-00073). The insurers have refused to pay for specific transmission and distribution losses, arguing that the policy language excludes certain asset classes.

If HEI fails to recover this $80 million from insurers, the utility may attempt to reclassify these costs as “uninsured losses” eligible for rate recovery. The PUC has historically been hostile to passing uninsured losses to ratepayers if the absence of coverage from management imprudence or policy lapses. This litigation outcome directly influence the final “true-up” of the securitization bonds in late 2026.

Legislative Context: Act 258 and Liability Caps

The recovery framework is underpinned by Act 258 (formerly SB 897), signed into law in mid-2025. Beyond authorizing securitization, this statute initiated a PUC study on a permanent “Wildfire Recovery Fund” and utility liability caps. The study, completed on December 31, 2025, concluded that a fund is “likely warranted” inextricably linked to the establishment of a liability cap. As of March 2026, the legislature has not yet enacted a specific dollar cap on future utility liabilities, leaving HEI exposed to uncapped tort risk for any fires occurring post-2025. This legislative gap compels the PUC to be aggressive in approving mitigation spending, as physical hardening remains the only guaranteed shield against future insolvency.

SECTION 14 of 22: Tax Strategy: Net Operating Loss Carryforwards from 2024 Write-Downs

The 2024 Write-Down: Constructing the Deferred Tax Shield

The fiscal collapse of 2024, characterized by a $1. 43 billion net loss, paradoxically created Hawaiian Electric Industries’ (HEI) most serious financial lifeline for the post-settlement era: a massive Deferred Tax Asset (DTA). While the headline loss was driven by the $1. 99 billion tort liability accrual and the strategic divestiture of American Savings Bank (ASB), the tax accounting treatment of these events established a future liquidity reservoir. As of December 31, 2024, HEI recorded an income tax benefit of approximately $502 million, capitalizing the future tax savings associated with the wildfire settlement.

This tax benefit is not an immediate cash infusion a “shield” constructed under ASC 740 (Income Taxes). Because the wildfire tort liability is accrued for financial reporting not yet deductible for tax purposes, it creates a temporary difference. Under Internal Revenue Code Section 461(h), economic performance, and thus tax deductibility, occurs only as payments are made to claimants. Consequently, the $1. 99 billion liability sits on the balance sheet as a DTA, waiting to be “unlocked” as HEI executes its four-tranche payment schedule starting in late 2025.

IRC Section 461(h) and the Liquidity

The mechanics of the tax deduction are strictly tied to the settlement cash outflows. This synchronization provides a natural hedge against the liquidity drain of the settlement payments. For every dollar HEI pays out to the settlement fund, it generates a tax deduction of approximately 25 cents (assuming a combined federal and state statutory rate of ~25-26%).

This structure subsidizes the settlement. As HEI pays the installment of $478. 8 million in late 2025, it simultaneously generate a tax deduction of the same amount. This deduction offset taxable income from the utility’s profitable operations, reducing HEI’s cash tax liability to near zero for the forecast period. If the deduction exceeds taxable income in any given year, it converts into a Net Operating Loss (NOL) carryforward, which under the Tax Cuts and Jobs Act (TCJA) can be carried forward indefinitely (limited to 80% of taxable income).

Tax Strategy Note: The “Economic Performance” rule ensures that HEI’s tax savings are realized in lockstep with its cash outflows, mitigating the risk of a liquidity mismatch. The company is paying the settlement with 75-cent dollars.

ASB Divestiture and Discontinued Operations

The December 31, 2024, sale of a 90. 1% stake in American Savings Bank for $405 million triggered distinct tax. HEI reported a loss from discontinued operations of $103 million for the full year 2024. Unlike the tort liability, the tax attributes of the bank sale were realized immediately upon closing.

The sale structure, retaining a 9. 9% non-controlling interest, allowed HEI to crystallize a capital loss on the divested shares. While capital losses can generally only offset capital gains, the specific structuring of the “de-banking” process may have allowed for the utilization of basis differences to offset other tax liabilities. yet, the primary value of the ASB transaction remains the immediate cash liquidity ($405 million) rather than a long-term tax shield, distinguishing it from the utility’s settlement DTA.

Valuation Allowance and Realization Risk

A serious component of HEI’s 2025 tax strategy is the absence of a full valuation allowance against its Deferred Tax Assets. In Q3 2024, management determined that the “substantial doubt” regarding HEI’s ability to continue as a going concern had been mitigated by the settlement agreement and financing plan. This determination allowed HEI to keep the DTA on its books as a realizable asset.

Had HEI been forced to record a full valuation allowance, it would have signaled a belief that the utility would not generate sufficient future taxable income to use the deductions. By maintaining the DTA, HEI signals confidence in the utility’s core profitability (projected at $168 million net income for 2025). The utility’s regulated revenue model provides the predictable income stream necessary to monetize these tax credits over the four-year settlement payout period.

Projected Tax Shield Monetization (2025-2028)

The following table outlines the projected realization of tax benefits based on the confirmed settlement payment schedule. This demonstrates how the tax shield reduces the cash cost of the liability.

*Excludes the initial $75M One Ohana contribution paid previously. Tax savings assume sufficient taxable income to fully use the deduction in the year of payment.

2025 Liquidity Impact

For the fiscal year 2025, the tax strategy provides a “virtual cash” injection. While HEI must physically pay the $478. 8 million settlement tranche, the elimination of federal and state income tax payments for the utility preserves approximately $120 million in operating cash flow that would otherwise have gone to the IRS and the State of Hawaii. This preserved cash is serious for funding the $600 million revolver pay-down and maintaining covenant compliance. The tax strategy converts the 2024 accounting write-down into a 2025-2028 operational subsidy.

Credit Rating Trajectory: S&P and Moody’s Outlook on Junk Status

Hawaiian Electric Industries (HEI) spent 2025 navigating a volatile credit, slowly pivoting from the severe “junk” ratings assigned in the immediate aftermath of the Maui wildfires. While the utility remains non-investment grade as of early 2026, major rating agencies executed multiple upward revisions throughout 2025, responding to the crystallization of the $4. 04 billion global settlement and state legislative support.

2025 Rating Actions and Outlooks

Both S&P Global Ratings and Moody’s Investors Service adjusted their assessments in 2025, moving HEI off their lowest distressed tiers. The trajectory reflects reduced uncertainty regarding the total liability cap, specifically the $1. 99 billion pre-tax share allocated to HEI and its utility subsidiary.

Settlement Payment Structure and Liquidity Impact

The finalized global settlement structure requires HEI to manage a $1. 99 billion obligation. To secure these payments without triggering a liquidity emergency, the company established a restricted cash reserve. As of December 31, 2025, HEI reported a total liquidity position of $1. 6 billion, comprising $502 million in unrestricted cash and $1. 1 billion in available credit capacity. This liquidity buffer stands alongside $479 million in restricted cash specifically ring-fenced for the settlement installment.

Financial even with these reserves. The settlement payment schedule, expected to commence in early 2026, a capital strategy involving new debt issuance and common equity sales. Moody’s noted in May 2025 that while the settlement clarifies the liability ceiling, the utility’s cash flow pre-working capital to debt ratio likely hover between 14% and 15% through 2027, a metric that constrains rapid credit improvement.

Legislative Catalysts for Upgrades

The rating upgrades in mid-2025 correlate directly with Hawaii state legislative actions. The passage of Senate Bill 897, which mandates the Public Utilities Commission to establish liability caps for future wildfire damages, provided a serious backstop for investors. S&P this legislation as a primary driver for its June 2025 upgrade to ‘B+’, stating the law “supports credit quality” by reducing the risk of catastrophic financial exposure from future climate events.

“The two-notch upgrade reflects the rising likelihood that the $4 billion global settlement be finalized in its current form.” , S&P Global Ratings, June 27, 2025

Investors continue to price HEI debt with a risk premium, acknowledging that while the immediate threat of insolvency has receded, the route to investment-grade status (BBB-/Baa3 or higher) depends on the successful execution of the multi-year payment plan and the utility’s ability to access capital markets at sustainable rates.

Bankruptcy Avoidance: The Ring-Fencing method Protecting Utility Assets

The survival of Hawaiian Electric Industries (HEI) through the 2023-2025 liquidity emergency hinged on a rigorous application of corporate ring-fencing, a legal and financial firewall designed to isolate the regulated utility, Hawaiian Electric Company (HECO), from the insolvency risks of its holding company. While the $1. 99 billion global settlement finalized in late 2024 provided the roadmap for liability resolution, the structural separation between HEI (the parent) and HECO (the utility) prevented a disorderly Chapter 11 filing that could have seized serious grid assets.

Regulatory Dividend Stops and Cash Trapping

The primary method protecting utility assets was the Hawaii Public Utilities Commission’s (PUC) enforcement of dividend restrictions. Following the August 2023 wildfires, the PUC “trapped” cash within the utility by suspending the upstream dividend to HEI. This regulatory ring-fence ensured that ratepayer funds collected for grid operations were not siphoned off to service the holding company’s legal liabilities or debt obligations.

Data from the Q4 2025 balance sheet confirms the effectiveness of this separation. As of December 31, 2025, the consolidated entity held distinct liquidity pools:

This , $486 million retained at the utility versus only $16 million at the parent, demonstrates the “non-consolidation” principle in action. While the parent company faced severe liquidity, forcing the sale of American Savings Bank (ASB), the utility maintained sufficient working capital to continue operations and execute the $120 million wildfire safety strategy approved in December 2025.

The ASB Divestiture as a Liability Shield

To satisfy the initial tranches of the settlement without breaching the utility’s ring-fence, HEI executed the sale of American Savings Bank (ASB) on December 31, 2024. The transaction yielded $405 million in cash consideration from a consortium of independent investors. Crucially, these proceeds were realized at the holding company level, allowing HEI to retire parent-level debt and fund the settlement trust without encumbering utility assets.

This “reverse ring-fencing” maneuver sacrificed the banking subsidiary to save the utility. By liquidating ASB, HEI avoided the need to pledge utility infrastructure, such as power plants or transmission lines, as collateral for settlement financing. The sale structure retained a 9. 9% non-controlling interest for HEI, preserving a sliver of future equity value while severing the bank’s balance sheet from the utility’s wildfire liabilities.

Governance and Independent Oversight

The bankruptcy avoidance strategy also relied on governance blocks. HECO’s board includes independent directors whose fiduciary duties are specific to the utility’s solvency, distinct from the interests of HEI shareholders. This governance structure is a prerequisite for the “bankruptcy remote” status assigned by credit rating agencies. Throughout 2024 and 2025, these directors oversaw the implementation of the “going concern” resolution plan, which required the settlement to be fully funded by insurance, equity issuance, and the ASB sale proceeds rather than utility liquidation.

“The sale allows HEI to enhance our focus on the utility… We intend to use the proceeds to reduce holding company debt, increasing flexibility for how HEI funds the wildfire settlement contributions.” , Scott Seu, President and CEO of HEI, January 2025.

Settlement Payment Structure vs. Chapter 11

The global settlement itself was structured to align with these ring-fencing constraints. Instead of a lump-sum demand that would trigger an immediate cross-default, the $1. 99 billion obligation was broken into four annual installments starting in mid-2026. This installment structure allows HEI to raise capital sequentially. The payment, partially funded by the $479 million restricted cash tranche (held in a bankruptcy-remote Special Purpose Entity), ensures that even if the parent company were to face future insolvency, the funds allocated for tort victims are legally separated from the general estate, preventing a “clawback” scenario in a chance Chapter 11 filing.

By Q2 2025, the PUC permitted a nominal resumption of upstream dividends, $10 million, signaling regulatory confidence that the utility’s capital base was no longer in immediate peril. yet, strict conditions remain: any future large- capital extraction from HECO to pay HEI’s settlement debts requires explicit commission approval, ensuring the grid’s operational integrity remains the primary financial priority.

Claimant Payout Timeline: Impact of Subrogation Appeals on Q2 2026 Disbursements

The Subrogation Standoff: Freezing the $479 Million Tranche

As of December 31, 2025, the trajectory of Hawaiian Electric Industries’ (HEI) global settlement disbursements has been fundamentally altered by the persistent litigation strategies of subrogation plaintiffs. While the $4. 037 billion global settlement agreement in principle was reached in August 2024, the actual transfer of funds to claimants remains deadlocked by the unresolved appeals from insurance carriers. These carriers, having paid out approximately **$2. 3 billion** in claims to policyholders, continue to challenge the settlement structure that restricts their recovery to liens on claimant awards rather than direct suits against HEI. For the fiscal quarter ending June 30, 2026 (Q2 2026), this legal bottleneck creates a definitive liquidity event: the **deferral of the settlement installment**. HEI has sequestered **$479 million** in a restricted cash account specifically for this purpose. yet, the conditions precedent for releasing these funds, specifically the finality of the “Good Faith Settlement” finding and the exhaustion of insurer appeals, have not been met as of the close of 2025. Consequently, the Q2 2026 disbursement window is closed, pushing the liquidity outflow into the second half of the fiscal year.

Procedural Mechanics of the Delay

The delay is not administrative structural. The subrogation insurers filed motions to intervene in the class settlement, arguing that their subrogation rights were being improperly extinguished. Although the Maui Circuit Court denied these motions in mid-2025, the insurers exercised their right to appeal to the Hawaii Supreme Court. This appellate process imposes a rigid timeline on the payout schedule: 1. **Briefing Schedule:** The appellate briefing concluded in late 2025. 2. **Oral Arguments:** Scheduled for early 2026. 3. **Judicial Deliberation:** Historically, the Hawaii Supreme Court requires 60 to 90 days post-argument to problem a ruling on complex mass tort problem. This timeline mathematically eliminates the possibility of a Q2 2026 disbursement. Even if a favorable ruling were issued in Q1 2026, the statutory period for motions for reconsideration would extend into Q2, preventing the settlement from becoming “final and non-appealable” until mid-year at the earliest.

Financial of the Q2 Deferral

The inability to disburse funds in Q2 2026 has a paradoxical effect on HEI’s balance sheet. While the **$1. 99 billion** liability remains on the books, the retention of the **$479 million** restricted cash tranche preserves short-term liquidity metrics. * **Interest Arbitrage:** The restricted cash is held in interest-bearing accounts. With short-term rates stabilizing in late 2025, HEI generates interest income on this frozen capital, which partially offsets the interest expense on the debt instruments used to finance the settlement. * **Burn Rate Stabilization:** By deferring the payout, HEI avoids the immediate shock of a half-billion-dollar outflow. This allows the company to maintain a higher current ratio through Q2 2026, providing a buffer as it negotiates the refinancing of its 2027-2028 debt maturities. * **Claimant Friction:** The financial benefit to HEI comes at the cost of claimant relations. The delay exacerbates the financial on Maui wildfire victims, chance increasing the reputational risk and political pressure on the utility to accelerate payments once the legal blocks are cleared.

“Our base case still assumes that our settlement payment occur no earlier than the quarter of 2026, contingent on the resolution of subrogation appeals.”
, Scott Seu, President and CEO, HEI (November 7, 2025 Earnings Call)

The Subrogation Lien vs. Direct Claim Conflict

The core of the appeal—and the cause of the Q2 delay—is the distinction between a “lien” and a “direct claim.” The settlement structure forces insurers to seek reimbursement solely from the settlement funds paid to their policyholders (a lien), rather than suing HEI directly. Data from the **Hawaii Insurance Division** and court filings indicate that insurers have paid out over **$2. 3 billion** in claims. If they were permitted to sue HEI directly, the $1. 99 billion settlement cap would be insufficient, chance blowing up the entire global settlement. The Hawaii Supreme Court’s anticipated ruling is expected to affirm the “lien-only” remedy, consistent with its May 2025 ruling on similar questions. yet, until that ruling is issued and final, the settlement administrator cannot release funds without risking double liability for the defendants. This legal firewall ensures that Q2 2026 be a period of **liquidity preservation** for HEI, rather than the commencement of the payout phase. The cash remains locked in the Special Purpose Entity (SPE), visible on the balance sheet as a restricted asset, legally untouchable until the subrogation plaintiffs exhaust their appellate remedies.

Vendor Payment Terms: Accounts Payable Aging and Supplier Risk

As of December 31, 2025, Hawaiian Electric Industries (HEI) has stabilized its vendor payment ecosystem following the liquidity emergency precipitated by the August 2023 Maui wildfires. The removal of the “going concern” warning in November 2024, paired with a credit rating upgrade to ‘B+’ by S&P Global Ratings in June 2025, halted the contraction of trade credit that threatened the utility’s supply chain throughout 2024. even with these improvements, the utility continues to operate under strict cash conservation, maintaining an accounts payable (AP) balance of approximately $203 million at year-end 2024, a figure that reflects a strategic stretching of payment terms within allowable contract windows.

Accounts Payable Composition and Aging Metrics

The composition of HEI’s trade payables reveals a bifurcation between serious operational vendors and discretionary service providers. Throughout 2025, the utility prioritized payments to fuel suppliers and emergency infrastructure contractors to prevent service interruptions. Data from the 2025 fiscal period indicates that while the aggregate AP balance remained consistent with 2024 levels, the Days Payable Outstanding (DPO) metric for non-serious vendors expanded, reflecting a deliberate strategy to preserve working capital for the impending $1. 99 billion settlement liability.

The following table outlines the trajectory of HEI’s vendor obligations and liquidity buffers during the stabilization period:

The surge in utility unrestricted cash to $486 million by the end of 2025 demonstrates a defensive accumulation of liquidity. This “cash hoarding” strategy, while necessary for settlement installments commencing in Q1 2026, places sustained pressure on the supply chain. Vendors in the construction and maintenance sectors have reported stricter adherence to net-45 and net-60 terms, a shift from the pre-fire standard of net-30.

serious Fuel Supply Stabilization: The Par Hawaii Agreement

The most significant indicator of supplier confidence in 2025 was the successful renegotiation of the fuel supply contract with Par Hawaii Refining, LLC. As the provider of low-sulfur fuel oil (LSFO) for Oahu’s power generation, Par Hawaii represents HEI’s single largest operational expense and vendor risk point. In mid-2024, fears mounted that Par Hawaii might demand cash-on-delivery (COD) terms or letters of credit, which would have drained HEI’s liquidity.

On June 23, 2025, the Hawaii Public Utilities Commission (PUC) approved an amended contract that not only secured fuel supply through January 31, 2029, also introduced pricing structures expected to reduce annual fuel costs by approximately $31 million. This agreement signals that HEI’s serious vendors no longer view the utility as an imminent default risk.

“The contract amendment… includes significant changes aimed at stabilizing fuel costs… [and] a guaranteed emergency fuel supply of up to 1, 000 barrels per day to supply Hawaiian Electric’s Schofield Generation Station during emergencies.”
, Hawaiian Electric Regulatory Filing, June 2025

This extension eliminates the risk of a fuel supply shock during the serious 2026, 2028 settlement payment window. By locking in terms through 2029, HEI has ring-fenced its most volatile operational cost from the liquidity volatility associated with the tort settlement.

Credit Rating Impact on Trade Credit

The restoration of trade credit availability is directly linked to the credit rating actions taken in mid-2025. Following the preliminary approval of the global settlement, S&P Global Ratings upgraded Hawaiian Electric Industries and its utility subsidiaries to ‘B+’ from ‘B-‘ on June 27, 2025. While still within speculative (junk) territory, this two-notch upgrade was pivotal for vendor relations.

A ‘B-‘ rating forces utilities to post significant collateral or prepay for goods, as suppliers cannot insure their receivables. The move to ‘B+’ allowed HEI to renegotiate collateral requirements with renewable energy developers and equipment manufacturers. Consequently, the utility has avoided the “liquidity death spiral” where vendor demands for immediate payment deplete the cash reserves needed to maintain operations. yet, the 2026 capital expenditure projection of $550 million to $700 million, primarily for wildfire hardening, test this newfound stability, as contractors for these large- projects likely require secured payment milestones.

Renewable Developer Payment Risks

While fuel and maintenance vendors have stabilized, friction with Independent Power Producers (IPPs). The delay in launching the “Smart DER” (Distributed Energy Resources) program in early 2024 highlighted operational bottlenecks that frustrated solar contractors. also, the 2025 liquidity analysis suggests that while HEI has sufficient cash for operations, the capital-intensive nature of new renewable projects has led to a slowdown in new interconnection payments. IPPs are increasingly requiring parent-level guarantees or escrowed payment structures, refusing to rely solely on the utility’s balance sheet given the $1. 99 billion tort liability hanging over the enterprise.

SECTION 19 of 22: Renewable Portfolio Standards: Funding 2030 Goals Amidst Liquidity Constraints

Current RPS Standing: The 37% Threshold

As of December 31, 2025, Hawaiian Electric Industries (HEI) reported a consolidated Renewable Portfolio Standard (RPS) of 37%, a marginal increase from 35. 8% in 2024. While the utility remains technically on track to meet the statutory interim goal of 40% by 2030, the pace of deployment has decelerated due to capital constraints and interconnection bottlenecks. The across islands remains significant: Hawaii Island leads with approximately 59% renewable generation, while Oahu lags at roughly 31%, heavily dependent on delayed solar-plus-storage projects to close the gap.

The calculation methodology, revised in 2022 to measure renewable energy as a percentage of total generation rather than sales, exposes the of the remaining challenge. To the 3% gap by 2030 while simultaneously retiring fossil fuel assets, HEI must bring nearly 1 gigawatt of new capacity online within a four-year window, a task complicated by the utility’s compromised credit standing and the diversion of unrestricted cash toward settlement liabilities.

The Capital Wall: Settlement Obligations vs. Green CapEx

The convergence of the $1. 99 billion Maui wildfire settlement and the utility’s peak capital expenditure (CapEx) pattern creates a “capital wall” for 2026, 2028. HEI’s Q4 2025 financial disclosures project CapEx rising to between $550 million and $700 million in 2026, with further escalation to $850 million by 2028. This spending is non-discretionary, driven by the dual mandates of wildfire hardening and renewable integration.

With the settlement installment of $479 million due in late 2026, HEI’s internal liquidity is severely taxed. The utility has relied on a $500 million debt issuance from September 2025 and a $600 million credit facility to fund these operations. yet, the high cost of capital, resulting from junk-status credit ratings, directly impacts the economic viability of utility-owned renewable projects. Consequently, HEI has shifted its strategy toward third-party Power Purchase Agreements (PPAs), transferring upfront capital risks to developers, though this introduces counterparty risks regarding developer financing.

Federal Lifelines and Grant Attrition

To offset liquidity constraints, HEI has aggressively pursued federal funding under the Infrastructure Investment and Jobs Act (IIJA). As of early 2026, the utility has secured two serious grants:

The rejection of the larger $480 million GRIP application in August 2024 was a significant blow, forcing HEI to finance a larger portion of its grid modernization through rate base method, which increases costs for ratepayers and pressures the utility’s balance sheet.

Project Pipeline: Delays and Cancellations

Financial and supply chain frictions have forced multiple revisions to the commercial operation dates (COD) of key renewable projects. The Waena Battery Energy Storage System (BESS) on Maui, originally slated for 2023, only commenced construction in January 2026 with a revised in-service date of 2027. This 40 MW/160 MWh system is serious for retiring the oil-fired Kahului Power Plant.

Similarly, on Oahu, the AES Mountain View Solar and AES Waiawa Phase 2 projects have faced repeated delays, with CODs pushed to April and May 2026, respectively. These delays exacerbate the reserve margin tightness and prolong reliance on thermal generation. In a more severe case of attrition, the contract for Innergex’s South Maui renewable project was terminated, citing cost escalations and legal challenges, removing a key asset from the 2025, 2026 deployment schedule.

Stage 3 Procurement and Interconnection Bottlenecks

The “Stage 3” Request for Proposals (RFP), intended to procure over 1, 170 MW of renewable capacity, remains the linchpin of the 2030 strategy. While the Final Award Group was selected in December 2023, the conversion of these awards into active projects has been slow. As of March 2026, the majority of these projects are still navigating the interconnection study phase or awaiting final Public Utilities Commission (PUC) approval for their PPAs.

To mitigate these delays, the PUC established an Interconnection Dispute Resolution Process (IDRP). yet, the sheer volume of projects attempting to interconnect simultaneously has overwhelmed technical resources. Without a rapid acceleration in PPA finalization and construction starts in 2026, the 2030 RPS target of 40% is at risk of slipping, even with the utility’s current projections.

Grid Modernization as a Prerequisite

Achieving high renewable penetration requires a modernized grid capable of handling bidirectional power flows. HEI’s “Climate Adaptation Transmission and Distribution Resilience Program,” approved in January 2024, allocates $190 million (split 50/50 between federal grants and ratepayers) through 2029. This program focuses on hardening serious circuits and replacing 2, 100 poles. While framed as wildfire mitigation, these upgrades are functionally necessary for the reliable integration of distributed solar and Stage 3 projects. The overlap between safety spending and renewable enablement has become the primary method for HEI to justify rate increases in a politically charged post-fire environment.

Post-Fire Compensation Restructuring: The “Bankruptcy Avoidance” Premium

In the wake of the August 2023 Maui wildfires, Hawaiian Electric Industries (HEI) fundamentally restructured its executive compensation framework for the fiscal years 2024 and 2025. The Compensation & Human Capital Management Committee shifted the primary focus from traditional earnings per share (EPS) growth and renewable energy penetration to financial survival, liquidity preservation, and settlement execution.

For the fiscal year ending December 31, 2024, HEI President and CEO Scott Seu received a total compensation package valued at approximately $3. 2 million to $4. 6 million (depending on realized equity valuation), a significant increase from the prior year. This pay raise occurred even with HEI reporting a net loss of $1. 43 billion for 2024. The Board of Directors justified this increase by citing the executive team’s success in “steering the utility away from bankruptcy” and securing the $1. 99 billion global settlement framework.

Similarly, Shelee Kimura, CEO of the utility subsidiary Hawaiian Electric Company (HECO), saw her compensation rise by approximately 74% to $1. 5 million in 2024. This increase was attributed to the stabilization of utility operations and the implementation of the “One ‘Ohana” initiative. The between the company’s catastrophic financial losses and executive pay hikes drew sharp criticism from ratepayer advocacy groups and the Sierra Club of Hawaiʻi, who noted that while executives received retention premiums, over 6, 400 households faced disconnection for non-payment in 2023.

2025 Short-Term Incentive Plan (STIP): Metrics Realigned to Safety and Liquidity

For the 2025 performance period, HEI’s Short-Term Incentive Plan (STIP) abandoned its historical weighting on pure profitability. Instead, the Board introduced “gatekeeper” metrics tied directly to the company’s ability to fund the settlement without triggering insolvency.

Long-Term Incentive Plan (LTIP) 2024-2026: The “Credit Restoration” Mandate

The 2024-2026 Long-Term Incentive Plan (LTIP) incorporates specific performance share units (PSUs) tied to the restoration of the utility’s investment-grade credit rating. With HEI’s credit rating downgraded to junk status (non-investment grade) following the fires, the cost of debt capital surged, complicating the financing of the settlement.

The LTIP includes a “Credit Recovery” metric, which vests only if HEI achieves specific credit milestones by the end of 2026. This ties executive wealth to the successful payment of the settlement installments, as a default on the settlement would trigger a credit collapse. also, the Board added a “System Hardening” metric, requiring the verified deployment of fire-safe fuses, covered conductors, and weather stations. This marks a departure from the 2023 LTIP, which heavily weighted carbon emission reductions (20% weighting). While decarbonization remains a goal, it has been deprioritized in the compensation formula in favor of immediate grid resilience and liability containment.

Clawback Provisions and “Forfeiture for Failure”

In response to shareholder derivative lawsuits and the $1. 99 billion tort liability, HEI strengthened its clawback policies in 2025. The new provisions allow the Board to recoup incentive compensation if the settlement agreement collapses due to management error or if subsequent investigations find “gross negligence” in the execution of the Wildfire Safety Strategy.

yet, the Board declined to apply these clawbacks retroactively to the 2023 period preceding the fires, a decision that remains a point of contention in ongoing shareholder litigation. Instead, executives voluntarily forwent their 2023 incentive bonuses, a move the company characterized as “accountability,” though it represented a fraction of their total realized compensation over the 2022-2024 period.

“The actions the company took in 2024 were serious in staving off bankruptcy… securing $942 million in funding from shareholders through an equity raise and the sale of our bank subsidiary to cover the two settlement installments.”
, HEI Spokesperson, justifying 2024 executive raises (March 2025)

Impact of the American Savings Bank (ASB) Divestiture on Executive Pay

The sale of American Savings Bank (ASB) in late 2024 removed a significant source of stable earnings that previously anchored executive bonuses. For 2025, the compensation of Ann Teranishi, ASB’s CEO, was decoupled from HEI’s consolidated metrics following the bank’s separation. For HEI executives, the divestiture meant that 100% of their performance metrics are tied to the volatile utility business. This concentration of risk has led the Compensation Committee to increase the grant date fair value of equity awards to retain talent, arguing that the “risk premium” for leading a distressed utility requires higher chance payouts.

As of March 2026, the success of this compensation strategy remains contingent on the final court approval of the settlement and the payment of the second installment. If the settlement structure holds and HEI avoids further credit downgrades, executives stand to vest significant equity awards in 2027, wealth directly extracted from the financial engineering used to resolve the wildfire liability.

Legislative Framework: The Twin Pillars of Act 258 and Act 301

The financial viability of Hawaiian Electric Industries (HEI) throughout 2025 hinged on two serious pieces of legislation signed by Governor Josh Green in July 2025: **Act 258** (formerly SB 897) and **Act 301** (formerly HB 1001). Together, these statutes established the “legislative backstop” necessary to operationalize the $4. 03 billion global settlement without forcing the utility into insolvency. While Act 301 created the **Maui Wildfires Settlement Trust Fund** to administer payouts, Act 258 provided the essential liquidity method, **securitization**, allowing HEI to convert its massive short-term liability into manageable long-term debt.

The Securitization Lifeline: Act 258

Act 258, enacted on July 1, 2025, authorized the Public Utilities Commission (PUC) to problem “financing orders” permitting Hawaiian Electric to problem recovery bonds. This method, frequently referred to as the “Catastrophic Wildfire Securitization Act” within the broader energy bill, was the primary fiscal for HEI’s $1. 99 billion settlement obligation. Without this legislation, HEI would have been forced to finance the settlement through high-yield “junk” bonds or equity dilution, strategies that analysts projected would have been insufficient to cover the full liability. Securitization allows the utility to problem highly rated bonds backed by a dedicated revenue stream, significantly lowering the cost of capital.

The Maui Wildfires Settlement Trust Fund: Act 301

While Act 258 provided the *means* to pay, Act 301 provided the *structure* for payment. Signed on July 8, 2025, this act established the **Maui Wildfires Settlement Trust Fund**, a dedicated state-administered vehicle designed to receive contributions from the seven defendants and disburse funds to the approximately 2, 200 claimants. The fund’s architecture was serious for HEI’s 2025 liquidity planning because it codified the payment schedule. Rather than a lump-sum demand, the legislation allowed for a structured capital injection, aligning with the issuance of the recovery bonds. The state contributed its $807. 5 million share directly into this fund, while HEI’s payments were synchronized with the finalization of the class action settlement in January 2026.

“This legislation is a huge win and sets a new precedent for swift settlement of claims for wildfire victims. It should not take years for people to see compensation or begin rebuilding. The settlement dollars all go out quite quickly because those monies are in an account from us.”
, Governor Josh Green, upon signing Act 301 (July 2025)

Ratepayer Impact: The Non-Bypassable Charge

The economic engine of the legislative backstop is the **Non-Bypassable Wildfire Recovery Charge**. Under Act 258, this charge is levied on all electric utility customers and cannot be avoided by switching to solar or alternative providers. This “non-bypassable” nature is what secures the AAA/AA rating for the recovery bonds, as it guarantees a revenue stream for bond repayment regardless of HEI’s corporate financial health. For the fiscal year 2025, HEI prepared the groundwork for this charge, with the PUC reviewing the impact on monthly bills. Preliminary filings indicated that while the charge would increase customer bills starting in 2026, the cost was significantly lower than the rate hikes that would have been required if HEI had financed the debt through traditional commercial loans. The legislation explicitly requires the PUC to ensure that the securitization structure results in the lowest possible cost to ratepayers.

Future Outlook: The Permanent Recovery Fund Study

Beyond the immediate settlement, Act 258 mandated a forward-looking study on a permanent **Wildfire Recovery Fund** to insulate the state and utility from future catastrophic liabilities. On December 31, 2025, the PUC submitted this detailed study to the Legislature. The report concluded that a standing wildfire fund is “likely warranted” to ensure timely compensation for future victims and to stabilize the utility’s credit profile. yet, the commission noted that such a fund is inextricably linked to the establishment of a **liability cap** for the utility—a contentious policy decision slated for the 2026 legislative session. This study serves as the blueprint for the phase of HEI’s financial rehabilitation, moving from emergency management to structural resilience.

SECTION 22 of 22: Solvency Stress Test: Modeled Liquidity Ratios Under Delayed Recovery Scenarios

Methodology and Stress Test Parameters

This final solvency analysis models Hawaiian Electric Industries’ (HEI) financial resilience through fiscal year 2026 under two distinct liquidity scenarios. The model integrates the verified Q4 2025 financial data, the $1. 99 billion global settlement liability, and the $479 million restricted cash tranche.

Scenario A (Baseline Recovery): Assumes the execution of the $350 million securitization bond issuance (Docket 2025-0263) by Q3 2026 and the release of the $479 million restricted cash for the settlement installment in H2 2026.

Scenario B (Delayed Recovery): Simulates a 12-month regulatory stalemate where securitization is stalled until 2027, and insurance subrogation appeals freeze the $479 million restricted cash, forcing HEI to service operational liabilities and initial settlement costs solely from unrestricted liquidity and the $600 million revolver.

Projected Liquidity Ratios (2026)

The following table projects key solvency metrics for year-end 2026. The “serious Threshold” represents the level at which credit rating agencies (Moody’s, Fitch, S&P) trigger a downgrade to highly speculative (C-tier) status or where covenant breaches occur.

Scenario B Analysis: The Securitization Gap

Under Scenario B, the absence of the $350 million securitization proceeds creates a direct liquidity vacuum. While HEI reported $502 million in unrestricted cash at the close of 2025, operational burn rates and capital expenditures for wildfire hardening, projected at $550 million to $700 million for 2026, rapidly deplete these reserves.

If the Public Utilities Commission (PUC) delays the recovery bond order beyond Q3 2026, HEI must draw heavily on its $600 million revolving credit facility. The model indicates that by October 2026, under this stress scenario, revolver utilization would exceed 85%. This high utilization rate limits the company’s ability to respond to emergency capital needs or weather events, stripping the utility of its financial buffer.

Covenant Compliance and Going Concern Risk

The stress test reveals that Scenario B places HEI in a precarious position regarding its debt covenants. Most utility credit agreements include a maximum consolidated use ratio or a minimum interest coverage ratio.

Risk Alert: In the Delayed Recovery scenario, the Debt-to-Equity ratio spikes to 2. 85x. If HEI is forced to finance the second settlement installment (due late 2026 or early 2027) with high-yield debt rather than equity-linked securities or securitization, the use ratio could breach the standard 65% debt-to-capitalization covenant common in utility indentures.

Conversely, the Baseline Scenario (A) maintains solvency. The successful deployment of Act 258 recovery bonds injects low-cost capital, preserving the revolver for operational liquidity. This route aligns with the S&P and Fitch upgrades seen in mid-2025, which were predicated on the assumption of regulatory support.

Conclusion: The Survival Horizon

The data confirms that HEI has successfully navigated the immediate post-fire liquidity emergency of 2023-2024. yet, the solvency model for 2026 demonstrates that the company’s financial stability remains strictly conditional. It relies on the synchronization of three external factors: the finalization of the $1. 99 billion settlement payment schedule, the timely approval of securitization, and the resolution of insurance subrogation appeals. Any deviation greater than six months from the projected timeline reintroduces material risk to the balance sheet.