Hawaiian Electric Co. is seeking expedited regulatory approval to sell utility assets to obtain a $250 million line of credit to improve its financial stability. 

The move, if approved by the Hawaii Public Utilities Commission, would allow HECO to use money owed by customers and other parties as collateral to establish lines of credit to fund operations, the company said in its application to the PUC. 

HECO told regulators it doesn’t need their approval to establish an initial short-term credit line, but it does need approval for its proposal to sell accounts receivable — essentially money owed to HECO — which are considered utility assets. HECO would also need approval for an anticipated long-term credit line to succeed the short-term credit line. The company asked the PUC to approve its first request by May 16.

“The tragic Maui windstorm and wildfires event on August 8, 2023 (the ‘Event’) had immediate and wide-ranging effects,” the company told the PUC. “Among them, within days, Hawaiian Electric’s credit ratings were downgraded to ‘junk’ — or non-investment grade — status. This effectively prevents the Hawaiian Electric Companies from accessing capital markets to obtain financing needed for core operations and investments to ensure public safety and reliable service.”

The new credit line would give HECO some breathing room as it faces more than 200 lawsuits alleging it started the fires that killed 101 people and destroyed much of Lahaina.

“We want to make clear this isn’t securitization or anything like that,” said Jim Kelly, HECO’s vice president for government and community relations and corporate communications. He stressed the money will be used for operations, not capital investments.

“It’s not for building a power plant or anything like that,” Kelly said.

HECO filed its request with the PUC in February, asking for approval within three months and calling the application the company’s “top near-term regulatory priority.” Now, HECO’s requested, mid-May approval deadline is approaching. 

HECO’s continuing push for the new credit line follows a failed bid for legislative approval that would have given HECO the ability to issue up to $2.5 billion in low-interest bonds secured by a new fee on customers. HECO’s chief executive, Shelee Kimura, testified that bond proceeds would be used to pay into a wildfire mitigation fund for infrastructure, a no-fault self-insurance “wildfire relief fund” and “if needed as a last resort for settling claims” related to the August fires.

Kimura also said that if lawmakers rejected those bills, “then we don’t have a whole lot of options on financing unless we can settle the litigation.”

But key legislators were not persuaded, and HECO’s bills stalled. Now what HECO calls its “A/R facility” — referring to accounts receivable — may be the company’s best option.

“An A/R facility is the most efficient and lowest cost form of financing reasonably available to the Hawaiian Electric Companies at this time,” the company said in its application. “In light of Hawaiian Electric’s current credit rating, the Companies are unable to access commercial paper markets or other unsecured financing.” 

With the potential for bankruptcy lurking, HECO is planning to run the accounts receivables and credit line through a “bankruptcy remote” special purpose entity to protect lenders.

“The purpose of the bankruptcy remote SPE is to reduce the risk to lenders in the event the Companies are subject to a future restructuring,” the company said in its application. “In an event of default and other specified conditions, the lenders have the ability to ‘sweep’ cash collections from the A/R to pay off outstanding loan principal, interest and fees.” 

“It’s a clear end run to get it away from creditors you’re worried about and to a creditor you’re more comfortable with.”

Ed Neiger, bankruptcy and plaintiffs lawyer representing Lahaina wildfire victims

Ed Neiger, a bankruptcy lawyer with the firm ASK LLP who represents Maui fire victims, said companies heading toward bankruptcy often set up SPEs to protect lenders providing money to the troubled companies at the expense of other creditors. While such SPEs may indeed be “bankruptcy remote,” as HECO puts it, “it’s not bankruptcy proof, definitely not bankruptcy proof,” Neiger said.

Bankruptcy laws are designed to prevent asset transfers simply to get the assets away from potential creditors, Neiger said. Transferring an asset like accounts receivables to an SPE is “a clear end run to get it away from creditors you’re worried about and to a creditor you’re more comfortable with,” he said.

Getting assets back from the SPE to the original creditors in the event of a bankruptcy, he said, “is just going to make creditors jump through a couple of hoops.”

Henry Curtis, executive director of the organization Life of the Land, has numerous questions about the proposal, questions he’s submitting to the PUC as part of the proceeding. Curtis was approved as an intervenor over HECO’s objections.

Among Curtis’s questions are ones focusing on HECO’s current level of liquidity, including, “What percentage of HECO`s targeted level of liquidity will be achieved if the PUC approved the $250M request?”

During parent company Hawaiian Electric Industries’ year-end conference call for investors in February, Scott DeGhetto, HEI’s executive vice president, chief financial officer and treasurer, said the company had ample cash on hand and that the new credit lines would provide more.

HEI had $137 million in cash and HECO had $106 million. In addition, DeGhetto cited the accounts receivable credit lines as contributing to create “sufficient liquidity runway as we work through the timing and potential impacts of litigation related to the Maui wildfires.”

Civil Beat’s coverage of Maui County is supported in part by a grant from the Nuestro Futuro Foundation.