Investing.com -- Hawaiian Electric Industries (NYSE:HE) shares slumped 13.9% in pre-market trading.
Uncertainty surrounding the proposed global settlement of claims related to the August 2023 Maui wildfires has cast a shadow over the company. Initial optimism surrounding the settlement has waned as challenges to the agreement emerge.
The proposed $4.037 billion global settlement, which would resolve all tort claims related to the wildfires, includes a $1.99 billion contribution from Hawaiian Electric.
However, this agreement is contingent upon resolving disputes between wildfire victims and their insurers over subrogation claims—a hurdle that could potentially derail the entire settlement process.
Wells Fargo (NYSE:WFC) in a note said that if the 90-day negotiation period passes without an agreed-upon split between the victims and insurers, or without a court order that shifts the subrogation claims risk away from the defendants and back to policyholders, the settlement could collapse entirely.
Such an outcome would likely lead to the resumption of tort trials against Hawaiian Electric, further escalating the company's financial risks.
The situation has become more critical following Hawaiian Electric’s booking of a $1.71 billion pre-tax charge in Q2 2024 related to the settlement.
This charge has triggered a "going concern" risk disclosure, signaling that without a clear financing plan, the company could default on certain outstanding debts.
“If certainty around a capital financing plan to address the payments is not in place prior to when HE’s 10-K filing is due, HE would be in default on certain terms of outstanding debt and lenders would have the option to call it,” said analysts at Wells Fargo.
Wells Fargo's base case scenario, which assumes the $1.99 billion liability is finalized, sees Hawaiian Electric’s stock price valued at approximately $14 per share.
However, this valuation could drop significantly if the company’s liability increases or if the settlement falls apart entirely.
In the worst-case scenario, where the settlement is not finalized, Wells Fargo warns that Hawaiian Electric’s equity value could plummet to zero.