Toshiba’s biggest creditors are split over the troubled conglomerate’s future as pressure builds for a swift Chapter 11 bankruptcy filing for the company’s US-based nuclear subsidiary Westinghouse.
People familiar with the talks say discussions between Toshiba, its main bank lenders and other stakeholders are now focused on whether it is possible or even desirable for Westinghouse to be placed under bankruptcy protection before the end of the Japanese financial year on March 31.
Looming over the discussions, which continued over the weekend, is the continuing threat to Toshiba’s status as a listed company. Since December, when it first admitted it might need to take a multibillion-dollar writedown on Westinghouse, the company has twice delayed filing audited earnings numbers for its third quarter.
The cause of the delay, say bankers, centres on the true nature of the financial crisis at Westinghouse — an obstacle that at least two of Toshiba’s main lenders believe would be resolved by placing Westinghouse under bankruptcy protection.
In a statement last week, Toshiba said: “Whether or not Westinghouse files for Chapter 11 is ultimately a decision for its board, and must take into account the various interests of all of its stakeholders, including Toshiba and its creditors. It is not appropriate for Toshiba to comment prematurely.”
Westinghouse currently has nine board members, three of whom are from Toshiba. The US company declined to comment when asked about the possibility of a Chapter 11 filing by the end of March.
Although publicly Toshiba continues to enjoy the support of its biggest lenders — a group that includes SMBC, Mizuho and Mitsubishi UFJ — bankers have described the increasingly strained nature of talks and demands on Toshiba to draw a clear line under its problems in the US. Lenders from Japan’s regional banking sector are even more critical of Toshiba’s handling of the unfolding crisis in its nuclear business
While it would obviously be neat to have the Westinghouse crisis ringfenced by a Chapter 11 filing before the end of the financial year, that deadline may be impossible to meet — especially if talks involve extensive input from the US government.
But tensions are also running high, say Japanese banking sources, on the question of whether a Chapter 11 filing is the right solution. “The regional banks are particularly allergic to anything with the word ‘bankruptcy’ in it,” said one banker, “and even if the megabanks think this is the right answer, they are still not all agreed on the right timing.”
Westinghouse’s problems — which triggered Toshiba's $6.3bn writedown warning and a sales process for its flagship flash memory business — stem primarily from cost overruns and delays relating to the construction of nuclear power plants in Georgia and South Carolina in the US.
While a Chapter 11 filing will provide more transparency to lenders and auditors of the liability risk Toshiba faces, legal experts say it is unclear whether the contracts Westinghouse signed with the two major owners of these two projects — Southern Company and Scana — can be renegotiated.
Typically, filing for bankruptcy protection does not allow the debtor the opportunity to renegotiate the contracts. But considering the pressures both the owners and Westinghouse are under — from investors and the US government — to complete the two nuclear projects, some lawyers say a renegotiation may be inevitable.
Toshiba is obliged to guarantee Westinghouse’s contingent liabilities, which primarily relate to the two US projects, and stood at ¥793.5bn ($7bn) at the end of March last year.
The US government has also offered loan guarantees totalling $8.3bn to finance the nuclear project in Georgia.
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