What happened
The tragic Maui wildfires could have massive implications for Hawaiian Electric Industries (HE -5.91%). Shares of the utility operator fell by more than 60% for the week so far, according to data provided by S&P Global Market Intelligence, due to the potential liability claims from the fire and what Hawaiian Electric might have to do to shield itself from those claims.
So what
So far, more than 100 people are known to have been killed by wildfires that swept across the Hawaiian island of Maui beginning on Aug. 8. And although it will take time to determine the exact cause of the fires, some are pointing at utility company Hawaiian Electric for its failure to shut down power lines ahead of Hurricane Dora hitting the island -- lawsuits have already been filed against it.
This scenario has played out across the western U.S. before, and investors have reason to worry about what's ahead for Hawaiian Electric. PG&E was forced into bankruptcy after its equipment was linked to wildfires that spread across California in 2017 and 2018, and other utilities including Berkshire Hathaway subsidiary Pacific Power have been hit with judgments.
Hawaiian Electric has reportedly been in touch with firms that specialize in corporate restructuring work, a sign it is exploring options ahead of what is expected to be massive scrutiny of its business in the months to come.
Now what
It is impossible to say exactly how all of this will play out, but there are very few scenarios that are good for shareholders. A bankruptcy could help Hawaiian to manage potential liabilities, but using PG&E as a precedent would leave investors with pennies on the dollar at best. Even if the company can avoid Chapter 11, court rulings could be a significant drain on cash for years to come.
There are obviously a lot more important things going on in Hawaii right now than investment stories, but shareholders do need to be aware of the ramifications for their portfolio. For now, there's a lot more that can go wrong for Hawaiian Electric than what could go right, and the stock has understandably sold off as a result.
