Westinghouse Electric reaches deal to resolve bankruptcy

NEW YORK — Westinghouse Electric Co. LLC, Toshiba Corp.’s nuclear services business, has made an agreement with its creditors that will clear the company’s path out of bankruptcy, according to three people familiar with the matter.

The deal will divvy up cash from the $4.6- billion proposed sale of Westinghouse to Brookfield Business Partners, an affiliate of Canada’s Brookfield Asset Management. It also increases the likelihood the bankruptcy will be resolved before Toshiba’s financial year ends on March 31, ensuring the Japanese company receives certain tax benefits.

As part of the agreement, Toshiba will sell its claims to a group of hedge funds led by the Baupost Group, making the group the biggest creditor in the case, according to the sources. The claims sale helps avoid fights among creditors that threatened to slow down the case.

The group led by Baupost already acquired claims worth more than $2.2 billion from Scana Corp., a South Carolina utility that contracted Westinghouse to build two nuclear reactors.

The South Carolina project, and a parallel project in Georgia, went billions of dollars over the fixed-price contract, forcing Westinghouse into bankruptcy in March.

The agreement has the support of Brookfield, the official committee of unsecured creditors, Westinghouse and Toshiba, according to one of the sources.

Westinghouse, Toshiba and a lawyer for the creditors’ committee declined to comment. Representatives for Brookfield and Baupost did not immediately respond to requests for comment.

Westinghouse’s bankruptcy in March pushed Toshiba into a crisis and prompted Toshiba to sell its memory chip business for $18 billion to shore up its balance sheet.

Pittsburgh-based Westinghouse, which traces its roots to the 19th century, was acquired by Toshiba in 2006 for $5.4 billion at a time of increased interest in cleaner fuel sources.

In recent weeks, Citibank N.A. on behalf of the Baupost group of hedge funds has claimed it is owed as much as $7.5 billion by Westinghouse, alleging among other things gross negligence. The allegations were based on the South Carolina claims that the Baupost group had acquired.

Westinghouse disputed the new claims and said it threatened to delay the resolution of the case.