Posted on: Saturday, April 23, 2005

HEI hit with lower debt rating

By Deborah Adamson
Advertiser Staff Writer

A warning from a New York debt-rating agency about the declining financial strength of Hawaiian Electric Industries should bolster the utility's case for a proposed rate hike.

Standard & Poor's yesterday revised its financial outlook on HEI and subsidiary Hawaiian Electric Co. to "negative" from "stable," citing "rising operating expenses, yet to be recovered investments and the long-term lack of rate relief."

HECO is seeking state approval to increase rates by a net 7.3 percent to meet growing electricity demands across O'ahu. If approved, the hike would be HECO's first in 10 years.

"Essentially, S&P put that negative outlook on the holding company and the utility due to the need for rate relief from the (Hawai'i Public Utilities) Commission," said Suzy Hollinger, manager of treasury and investor relations at HEI.

A negative outlook means that the credit rating of HEI and HECO may be lowered over the next six months to two years. A credit rating is an indication of how well a company can repay debt. A lower rating would make it more expensive for HEI to borrow.

"The outlook revision reflects a declining trend in HEI's consolidated financial condition, despite the strong Hawai'i economy and the company's efforts in recent years to strengthen capital structure balance," Standard & Poor's analyst Barbara Eiseman said.

The Honolulu parent of Hawaiian Electric Co. and American Savings Bank had $1.2 billion of debt as of Dec. 31, she said.

Yesterday, S&P affirmed a credit rating of "BBB" for HEI, which means the company has "adequate capital" to meet financial commitments, but adverse economic conditions or changing circumstances are more likely to make it tougher to meet debt obligations.

HECO — and its units Hawaiian Electric Light Co. and Maui Electric Co. — had their "BBB+" ratings affirmed as well by S&P.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.