Cash-strapped Westinghouse sees hope in ser­vice, fu­els

Pittsburgh Post-Gazette - - Front page - By Anya Lit­vak

Westinghouse Elec­tric Co,’s much-an­tic­i­pated bank­ruptcy pe­ti­tion — filed in the wee hours Wed­nes­day morn­ing — de­scribes a com­pany in quick­sand, where two money-suck­ing re­ac­tor projects in Ge­or­gia and South Carolina brought down the Cran­berry-based nu­clear firm and threat­ened to do the same to its Ja­panese par­ent, the elec­tron­ics gi­ant Toshiba Corp.

As more than 11,000 em­ploy­ees and thou­sands of ven­dors world­wide braced for what a bank­ruptcy would mean for this nu­clear gi­ant — and what it will mean for the broader nu­clear in­dus­try — doc­u­ments filed in the South­ern Dis­trict of New York Bank­ruptcy Court chron­i­cled a des­per­ate few months as it be­came clear that Toshiba was look­ing for ways to stop the bleed­ing.

By Jan­uary, Westinghouse’s “liq­uid­ity cri­sis” had the Penn­syl­va­nia com­pany ask­ing Toshiba for cash to stay afloat long enough to figure out its next moves. Within the course of two months, Toshiba gave Westinghouse $900 mil­lion to plug a cash hole. When Westinghouse came back in March ask­ing for more, Toshiba said it couldn’t shell out any more money with­out col­lat­eral.

Westinghouse went out look­ing for some­one to fund its Chap­ter 11 bank­ruptcy re­struc­tur­ing and was “soon inun­dated with pro­pos­als from a num­ber of prom­i­nent banks, pri­vate eq­uity firms and hedge funds in a highly com­pet­i­tive process,” its bank­ruptcy pe­ti­tion said.

New York-based al­ter­na­tive in­vest­ment man­age­ment firm Apollo In­vest­ment Corp. won out, with an $800 mil­lion debtor-in-pos­ses­sion fi­nanc­ing pack­age, of which Toshiba would pro­vide at most $200 mil­lion, the Ja­panese com­pany said.

The bank­ruptcy court still has to ap­prove the ar­range­ment.

Lisa Don­ahue, a turn­around spe­cial­ist with AlixPart­ners who started work­ing with Westinghouse in De­cem­ber, sketched out the path for­ward for Westinghouse in a dec­la­ra­tion to the bank­ruptcy court.

“De­spite [Westinghouse’s] re­cent fi­nan­cial trou­bles, the ma­jor­ity of the debtors’ busi­nesses — par­tic­u­larly those re­lat­ing to nu­clear fuel and the ser­vic­ing of nu­clear plants — are very prof­itable,” she said.

The bank­ruptcy process will al­low Westinghouse to re­or­ga­nize around these “prof­itable core busi­nesses,” she stated, “and iso­late them from the one spe­cific area of their busi­nesses that is los­ing money: their con­struc­tion of nu­clear power plants in Ge­or­gia and South Carolina.”

Ms. Don­ahue en­vi­sioned Westinghouse emerg­ing from the process as a “healthy, well-cap­i­tal­ized com­pany ca­pa­ble of con­tin­u­ing Westinghouse’s proud his­tory as an icon of Amer­i­can in­ge­nu­ity.”

But it’s un­clear what will hap­pen to its new re­ac­tor busi­ness un­der that sce­nario. Westinghouse’s AP1000 de­sign — de­vel­oped over the past two decades as the next gen­er­a­tion of nu­clear power — was sup­posed to be the growth en­gine of the com­pany.

Just a year ago, Toshiba’s plan for Westinghouse as­sumed that the Penn­syl­va­nia com­pany would se­cure con­tracts for 45 new nu­clear re­ac­tors in the next 15 years.

Westinghouse spokesper­son Sarah Cas­sella as­sured on Wed­nes­day that even in bank­ruptcy the com­pany is still work­ing to sign new AP1000 projects, in­clud­ing six re­ac­tors in In­dia. It just won’t be the one build­ing them, she said.

A way out of con­tracts

Westinghouse’s bank­ruptcy pe­ti­tion blames “un­fore­seen chal­lenges” for years of de­lays and bil­lions of dol­lars in cost over­runs at the U.S. new nu­clear projects. It sin­gles out Nu­clear Reg­u­la­tory Com­mis­sion re­quire­ments that were put in place af­ter the Sept. 11 ter­ror­ist at­tacks that man­dated de­sign changes to with­stand the force of air­craft im­pact.

The pe­ti­tion does not harp on prob­lems that the com­pany has had with var­i­ous plant com­po­nents, fab­ri­ca­tion and project man­age­ment.

For now, Westinghouse and its util­ity cus­tomers that com­mis­sioned the AP1000 re­ac­tors in Ge­or­gia and South Carolina have agreed to a kind of breath­ing pe­riod — a month where work con­tin­ues on the two projects with the util­i­ties pay­ing for it — to figure out what hap­pens next.

The way Debtwire le­gal an­a­lyst Richard Gold­man read that is that Westinghouse wants out of its con­tract obli­ga­tions.

“What bet­ter place [to ac­com­plish that] than in Chap­ter 11,” he said, “which gives Westinghouse huge power and lever­age over” the util­i­ties. Westinghouse and the util­i­ties agreed on the “in­terim as­sess­ment” pe­riod, cau­tion­ing that it’s un­cer­tain what will hap­pen at the end.

The pos­si­bil­i­ties in­clude Westinghouse and Fluor Corp., the en­gi­neer­ing and con­struc­tion com­pany Westinghouse brought in to get con­trol of the project last year, con­tin­u­ing the work; one or both of the util­i­ties hir­ing a dif­fer­ent con­trac­tor to fin­ish the projects; or aban­don­ing con­struc­tion, leav­ing the first new nu­clear plants to be started in the U.S. in three decades un­fin­ished.

Mr. Gold­man, a for­mer re­struc­tur­ing and lit­i­ga­tion at­tor­ney with the law firm rep­re­sent­ing Westinghouse in the bank­ruptcy, called the ini­tial as­sess­ment pe­riod a “smart tac­tic,” and one that in­di­cates that the par­ties are will­ing to ne­go­ti­ate, rather than rush­ing to sue.

Lon­nie Carter, president and CEO of San­tee Cooper, a util­ity that’s part owner of the South Carolina AP1000 project, said the in­terim as­sess­ment agree­ment also will give util­i­ties “crit­i­cal di­rect ac­cess to re­sources and in­for­ma­tion that Westinghouse had not pro­vided us to date, which will be im­por­tant as we plan for the fu­ture of the project.”

It’s un­likely that a res­o­lu­tion will be ob­vi­ous at the end of that pe­riod on April 28, Mr. Gold­man said.

Hope for swift re­cov­ery

The bank­ruptcy sketches out Westinghouse’s im­mense his­tory in nu­clear power, stretch­ing back to the first com­mer­cial re­ac­tor built in Ship­ping­port, Beaver County. Half of the world’s op­er­at­ing nu­clear plants were built with Westinghouse de­signs, it says, and in the U.S., its tech­nol­ogy is used in 60 per­cent of work­ing re­ac­tors.

The com­pany, with 61 of­fices and 11,500 em­ploy­ees around the world, fu­els and ser­vices many of these plants.

It’s not clear what will hap­pen to the 4,500 em­ploy­ees who work in the Pitts­burgh re­gion, al­though the bank­ruptcy pe­ti­tion stresses that los­ing tal­ent would be dis­as­trous for its fu­ture prospects.

There are about 386 em­ploy­ees in Cran­berry that be­long to the As­so­ci­a­tion of Westinghouse Salaried Em­ploy­ees, a union whose con­tract ex­pires in July.

Lo­cal lead­ers ex­pressed hope for a swift re­cov­ery. Jerry An­dree, Cran­berry Town­ship man­ager, said in a state­ment that Westinghouse is a “re­silient com­pany” and that “there is every rea­son to be­lieve they will over­come this cur­rent chal­lenge and con­tinue to be a leader in their field.”

“The Beaver County re­gion needs Westinghouse to emerge strong and re­main a key com­po­nent of our di­verse en­ergy in­dus­try,” tweeted Jack Manning, president and CEO of the Beaver County Cham­ber of Com­merce.

The Nu­clear En­ergy In­sti­tute, a Wash­ing­ton, D.C.based trade group, down­played the alarm over the fil­ing and en­cour­aged the projects to pro­ceed.

“Build­ing a nu­clear plant is a com­plex en­ter­prise, and his­tor­i­cally, such projects have seen changes in mid­stream in­clud­ing com­pa­nies en­ter­ing bank­ruptcy,” said Maria Korsnick, president and CEO of the group, in a state­ment. “Even when these events oc­cur, projects can go for­ward.”

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