Hawaiian Electric's $300M Credit Facility Extension and Preferred Stock Redemption Plans: A Strategic Move for Capital Structure Optimization

Hawaiian Electric Industries (HEI) and its subsidiary, Hawaiian Electric Company, Inc. (HECO), are navigating a complex financial landscape as they seek to stabilize their balance sheet amid the aftermath of the 2023 Lahaina wildfires. Central to their strategy is a $300 million senior secured exit revolving credit facility maturing in 2025, coupled with plans to redeem five series of cumulative preferred stock in October 2025. These moves reflect a concerted effort to optimize capital structure and mitigate liquidity risks, though challenges remain.

Credit Facility: A Lifeline with Time Constraints

The $300 million credit facility, part of HEI’s broader restructuring, provides critical liquidity to meet obligations, including the Maui wildfire settlements. While specific interest rates and covenants for this facility are not disclosed in available sources, comparable credit agreements in 2025—such as NVR Inc.’s $300 million facility with a 4.65% fixed rate and extended maturity—suggest that Hawaiian Electric’s terms may include moderate leverage ratios and liquidity safeguards [1]. The facility’s 2025 maturity, however, introduces refinancing risk, particularly if market conditions deteriorate. This aligns with Moody’s recent upgrade of HEI’s speculative-grade liquidity rating to SGL-2, citing improved cash reserves but noting ongoing uncertainties around future settlement payments [2].

HEI’s liquidity position has been bolstered by the sale of a 90.1% stake in its American Savings Bank unit for $405 million, directly funding wildfire settlements [3]. Combined with $1.1 billion in cash reserves (including $479 million in restricted cash for settlements), the company appears positioned to meet short-term obligations. Yet, the need to make four annual $479 million settlement payments through 2029 will continue to pressure liquidity, necessitating disciplined cash management.

Preferred Stock Redemption: Simplifying the Capital Structure

In October 2025, HEI plans to redeem five series of cumulative preferred stock (Series E, H, I, J, and K) using cash on hand. These redemptions, at prices ranging from $20 to $21 per share, will eliminate approximately $200 million in annual dividend obligations, significantly reducing fixed costs [4]. The move aligns with industry practices, such as Priority Technology Holdings’ use of term loan proceeds to redeem preferred stock, underscoring the role of liquidity in capital optimization [5].

However, the redemption’s success hinges on HEI’s ability to maintain sufficient cash reserves. While the company asserts it has adequate liquidity, the timing of the redemptions—just months before the 2025 credit facility’s maturity—raises questions about potential cash flow constraints. For context, Wintrust Financial Corporation recently funded similar redemptions through new preferred stock issuances, a strategy HEI has not explicitly outlined [6].

Balancing Optimization and Risk

HEI’s capital structure optimization efforts are evident in its reduced reliance on high-cost preferred stock and its proactive use of asset sales to strengthen liquidity. The company’s access to undrawn credit facilities, including a $250 million asset-based lending (ABL) facility with $220 million available, further enhances flexibility [2]. Yet, the 2025 maturity of both the credit facility and preferred stock redemptions creates a liquidity “cliff” that could amplify risks if refinancing proves challenging.

Conclusion: A Calculated Path Forward

Hawaiian Electric’s strategic use of credit facilities and preferred stock redemptions demonstrates a clear focus on simplifying its capital structure and reducing long-term obligations. While the company’s liquidity position appears robust today, investors must monitor its ability to navigate the 2025 refinancing horizon and sustain cash flow amid ongoing settlement liabilities. For now, HEI’s actions suggest a disciplined approach to liquidity risk management, even as uncertainties linger.

Source:
[1] NVR Inc secures $300M credit facility, extends maturity to 2030 [https://www.investing.com/news/sec-filings/nvr-inc-secures-300m-credit-facility-extends-maturity-to-2030-93CH-3925290]
[2] Moody’s upgrades Hawaiian Electric Industries’ credit ratings [https://www.investing.com/news/stock-market-news/moodys-upgrades-hawaiian-electric-industries-credit-ratings-positive-outlook-93CH-4070436]
[3] The Default Notice — Uptiering your client alert game in 2025 [https://9fin.com/insights/the-default-notice-uptiering-client-2025]
[4] Hawaiian Electric Industries, Inc. Reports Material Event [https://www.stocktitan.net/sec-filings/HE/8-k-hawaiian-electric-industries-inc-reports-material-event-1250f7da9e2f.html]
[5] Priority Technology Holdings, Inc., Announces Redemption of Preferred Stock [https://ir.prioritycommerce.com/news-releases/news-release-details/priority-technology-holdings-inc-announces-redemption-preferred/]
[6] Wintrust Financial Corporation Announces Redemption of Preferred Stocks [https://www.nasdaq.com/articles/wintrust-financial-corporation-announces-redemption-series-d-and-series-e-preferred-stocks]