Cash-strapped Westinghouse sees hope in service, fuels
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.”