OREANDA-NEWS. S&P Global Ratings today affirmed its 'BBB-' long-term issuer credit and other ratings on Hawaiian Electric Industries Inc. (HEI) and its subsidiaries, Hawaiian Electric Co. Inc. (HECO), Maui Electric Co. Ltd. (MECO), and Hawaii Electric Light Co. Inc. (HELCO). At the same time, we removed the ratings from CreditWatch, where we placed them with positive implications on Dec. 4, 2014. The outlook is stable.

"The rating actions reflect the termination of the company's planned merger with NextEra, which would have led to higher ratings for HEI," said S&P Global Ratings credit analyst Dimitri Nikas.

We assess HEI's credit profile based on the company's regulated utilities and the bank operations at American Savings Bank FSB Honolulu HI (ASB). We assess the bank operations as an equity investment and rate ASB 'BBB' on a stand-alone basis since we view the bank as being separate from the parent's operations in regulatory and operational terms.

The business risk profile assessment for HEI is characterized by regulated utility operations under a challenging regulatory environment; a small service territory that lacks operating and geographic diversity with a shallow local economy concentrated in the tourism, construction, and military sectors; and poor operating performance with some projects being completed above budget and behind schedule. While penetration of rooftop solar installations has increased rapidly over the past few years, in 2015 the Hawaii Public Utilities Commission (HPUC) implemented certain measures that should enable the utilities to better manage the impact of additional installations, somewhat moderating business risk. HECO benefits from a fuel and purchased power cost recovery mechanism that, in combination with a revenue decoupling framework, can provide for cash flow stability while still placing the burden on the company to effectively control operating costs. In response to the HPUC's efforts to increase renewable energy penetration, HECO has submitted proposals indicating how the utility will more effectively deal with demand response, distributed generation, and resource portfolio issues within its service territories. We view HECO's ability to effectively respond to the commission orders in a timely manner and without any meaningful detriment to its credit profile as essential in preserving its ratings.

We assess HEI's financial risk profile as being in the significant category using the medial volatility financial ratio benchmarks. Under our base-case scenario we project that HEI will achieve FFO to debt that ranges from 16%-17%, which is somewhat weaker than historical trends, while debt to EBITDA will range from 4.0x-4.5x.

The stable outlook on HEI and its utility subsidiaries is based on the company's strong business risk profile and financial measures that are toward the middle of the significant category, with FFO to debt that ranges from 16%-17%. We expect that HEI will continue to benefit from the decoupling framework currently in place while striving to effectively work with the regulator to increase the contribution of renewable energy in its portfolio without increasing business risk or compromising its financial integrity.

We could lower the ratings on HEI and its utility subsidiaries over the next 12 to 24 months if business risk increases either due to regulatory developments that complicate the company's ability to fully recover invested capital or inability to deliver timely and on-budget performance for large projects which would also lead to weaker financial performance with FFO to debt that is consistently below 13%.

Given our assessment for business and financial risk for HEI, we could raise the ratings over the next 12 to 24 months if the company is able to demonstrate constructive regulatory outcomes on a consistent basis or if FFO to debt approaches the upper end of the significant category between 21%-23%.