Toshiba seeks third party route to settling claims

20 November 2017

Toshiba Corporation has decided to "explore alternatives" to sell to a third party its claims against Westinghouse Electric Company (WEC). This would allow the Japanese electronics company to "significantly reduce the internal resources that it is required to allocate to WEC’s rehabilitation proceedings, and to focus them on cultivating its new businesses".

Following WEC's filing for Chapter 11 creditor protection with US courts in March, Toshiba negotiated with the owners of the Vogtle nuclear power plant construction project, and entered into a settlement agreement in June. This agreement sets the limit of Toshiba's parent company guarantee obligation at $3.68 billion and specifies that payments are to be made in installments between October 2017 and January 2021.

In July, Toshiba also entered into a settlement agreement with the owners of the VC Summer project, which sets the limit of Toshiba's parent company guarantee obligation at $2.168 billion and specifies that payments are to be made between October 2017 and September 2022.

Toshiba said yesterday, however, that both maximum guarantee amounts are specified in US dollars, and payments to both are to be made at the same time, exposing the company to "extremely high risks" from fluctuations in currency exchange rates associated with such a "huge amount of debt".

Since the occurrence of goodwill impairment from WEC's acquisition of CB&I Stone & Webster Inc, Toshiba has been required to "devote material internal resources" in monitoring and participating in WEC’s Chapter 11 proceedings.

"Considering Toshiba's other priorities that are unrelated to WEC, Toshiba believes that it is the best interests of Toshiba and its stakeholders to resolve as many issues in connection with WEC's Chapter 11 proceedings as it can, as soon as practicable, in order to focus Toshiba's internal resources on its core business," it said.

Toshiba has therefore decided to "find the necessary funding" to offer to make early payment of the parent company guarantee obligation in the full amount, and to obtain the right to demand reimbursement from WEC of the amount paid. Toshiba intends to sell its claims to a third party, including such reimbursement against WEC, and also WEC-related interests that it holds.

Toshiba reported in its financial report for the second quarter as of 9 November that it had recorded losses regarding the parent company guarantee obligation, and made provision with respect to these assets. As a result, Toshiba recorded JPY1,394,157 million net loss before income taxes from discontinued operation regarding the WEC Group's nuclear power systems business. Most of such loss requires an additional declaration under tax returns, it said, of about JPY1,400 billion.

If the proposed sales of Toshiba's WEC-related assets is completed by the end of March 2018, Toshiba is expected to be able to reduce the tax impact recorded as a result of determining the value of the memory business, which would contribute a minimum of JPY240 billion to "further remedying" the negative consolidated balance sheet, it said. In January, Toshiba announced the spin-off of its flash memory business into a separate company.

Parental guarantee obligations were agreed by Toshiba and the owners of the two US AP1000 construction projects in 2008, when orders for the units were first placed with WEC. Following WEC's filing for chapter 11 bankruptcy, Toshiba agreed in June to pay a maximum of $3.68 billion to the owners of Vogtle - Georgia Power (45.7%), Oglethorpe Power (30%), MEAG Power (22.7%) and Dalton city (1.6%) - with payments to be made in instalments from October 2017 to January 2021. In July, it reached an agreement with the owners of the Summer project - South Carolina Electric & Gas (SCE&G) (55%) and Santee Cooper (45%) - to pay a maximum of $2.168 billion.

Toshiba said in October that it had made its first payments to the owners of the VC Summer and Vogtle nuclear construction projects under its guarantee obligations as WEC's parent company. The Japanese company also confirmed then that it is to acquire KazAtomProm's 10% stake in WEC on 1 January. Georgia Power CEO said they had received a second payment, of $77.5 million, on 1 November. Construction is continuing at Vogtle, near Waynesboro, and in August Georgia Power contracted with Bechtel to manage daily construction efforts under the direction of Southern Nuclear.

Georgia Power in August filed a recommendation with the Georgia Public Service Commission to complete construction of the two AP1000 units as the most economic choice for customers. But the owners of the Summer project decided in August to abandon the construction of the two AP1000s near Jenkinsville in South Carolina.

Researched and written
by World Nuclear News