Potential Bankruptcy of Nuclear Contractor Hovers over Two Public Utilities

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BRADENTON, Fla. – Credit concerns are mounting over the financial stability of Toshiba Co., parent of the company building partly municipal bond-financed nuclear units in South Carolina and Georgia.

Toshiba is reportedly considering a bankruptcy filing for its Pittsburgh-based Westinghouse Electric Co. unit.

The major municipal power agency shareholders in the two nuclear projects are the Municipal Electric Authority of Georgia and South Carolina Public Service Authority, also known as Santee Cooper.

Westinghouse is the engineering, procurement and construction contractor for Plant Vogtle, where Georgia Power Co. is building two new units, as well as at VC Summer where South Carolina Electric and Gas Co. is building two units.

MEAG owns 22.7% of the new units at Plant Vogtle and projects that its total financing costs will be about $4.7 billion. Santee Cooper is a 45% owner in VC Summer's new units and estimates its costs will be about $5.1 billion.

"The huge losses Toshiba is facing are attributed to Westinghouse," the Charlotte Observer said Friday, citing Bloomberg News and the Associated Press. "Toshiba is considering the option of Chapter 11."

Toshiba Corp.'s chairman, Shigenori Shiga, resigned after the company released unofficial third-quarter results on Feb. 14 projecting an estimated $6.3 billion in losses by Westinghouse, primarily because of its U.S. nuclear business.

"Generally, a Westinghouse bankruptcy would be credit negative," Moody's Investors Service analyst Dan Aschenbach said Monday, though he added that there are mitigation measures built into the construction contracts, including letters of credit and Toshiba's parental guarantee on both the projects. "Also the utilities have escrows on the project's design and intellectual properties."

When asked about reports of a possible bankruptcy filing by Westinghouse, Aschenbach said, "We are reluctant to comment since Toshiba has announced it plans to continue with the Summer and Vogtle projects."

On Feb. 17, Fitch Ratings placed its A-plus rating on Santee Cooper's s$6.7 billion of revenue obligations on rating watch negative.

"The negative rating watch reflects the heightened risk posed by the continued weakening credit profile of Toshiba Corp. that could ultimately hamper completion of the V.C. Summer nuclear expansion project and undermine Toshiba's financial support," said Fitch analyst Christopher Hessenthaler.

Fitch said it does not rate Toshiba, though it expects the negative watch to be resolved in the next six months as Toshiba assesses efforts to enhance its equity position and remain solvent.

New construction delays on the South Carolina project were recently announced.

Fitch said those delays could lead to further cost overruns, increased financial obligations, additional rate pressures, and reduced financial and operating flexibility for Santee Cooper that are no longer consistent with the current rating.

S&P Global Ratings, which rates the various entities involved in the Georgia and South Carolina projects, said on Feb. 14 that it is continuing to assess whether the financial burdens at Toshiba will translate into negative effects on credit ratings.

"In our view, although the projects are more than half complete and most of the plants' key components have been fabricated and delivered to the construction sites, the substantial cost overruns and the announced impairments raise concerns about Toshiba's and Westinghouse's capacity to complete the nuclear units," said David Bodek, an S&P analyst.

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