Takata mulls bankruptcy for U.S. unit, filing will take time: source

November 3, 2016 7:51 PM EDT

A sign with the TAKATA logo is seen outside the Takata Corporation building in Auburn Hills, Michigan May 20, 2015. REUTERS/Rebecca Cook/File Photo


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By David Shepardson and Naomi Tajitsu

WASHINGTON/TOKYO (Reuters) - Japan's Takata Corp is considering a bankruptcy filing for its U.S. unit as the air bag maker looks for a sponsor to help pay for liabilities related to its faulty inflators, a person briefed on the matter told Reuters.

Takata has been working to choose a financial backer for its turnaround as it faces huge costs related to the global recall of millions of potentially faulty inflators. A company-appointed steering committee has retained investment bank Lazard Ltd as an adviser for the process.

The company is struggling to supply replacement parts for the potentially defective inflators, which have been linked to at least 16 deaths worldwide, mainly in the United States, and have led to the industry's largest ever recall, with about 100 million ordered to be withdrawn globally.

A Chapter 11 filing for its U.S. unit, Michigan-based TK Holdings, which accounts for nearly half of Takata's global sales, was one option it was considering although no filing was expected soon, the source said.

A filing would not be imminent because the company still had to select a sponsor and finalize terms, and reach an agreement with automaker creditors, the source said.

Takata on Friday reiterated its eagerness to reach an agreement with its automaker customers over the restructuring, ideally by year end, although it added that any decision ultimately would be made by the steering committee.

"Our preference would be to restructure debts through an out-of-court settlement with creditors. This has been our position since the start, and has not changed," Takata CFO Yoichiro Nomura told reporters at a results briefing.

"Aside from that, we're open to all options."

He added that an out-of-court settlement would be preferable to a court-ordered bankruptcy for all of the company's global operations as it would ensure a stable supply of inflator replacement parts required in the recall.

PROFIT FORECAST RAISED

The tussle over bankruptcy is likely to delay by months the naming of a rescuer and completion of Takata's restructuring plans that were earlier expected to be finished this year, sources told Reuters last month.

Bidders for the company include Japanese inflator maker Daicel Corp and Sweden's Autoliv, sources have said, while its creditors include the world's largest automakers including Honda Motor Co, the Renault/Nissan alliance and Ford Motor Co.

Mounting air bag-related costs have pummeled Takata's profits, with the company last year booking its third annual loss in four years, while its share price has dropped 90 percent since 2014.

The company on Friday said the risk of rising air bag-related costs meant that it would not issue a dividend for the first half.

Still, it raised its full-year net profit forecast to 20.0 billion yen ($193.87 million) from the previous estimate of 13.0 billion, banking on a boost from asset sales in the first half, including its sale of its interiors unit.

This forecast largely excludes the impact of the recalls as the company so far has only outlined a small number of related liabilities.

If Takata were found to be solely responsible for the inflator defect, it could face a bill of about $13 billion for recalls announced so far, based on calculations from experts and automakers including General Motors.

It also faces U.S. lawsuits.

These potential liabilities would dwarf the company's war chest of around 72.4 billion yen as of the end of September. So far, automakers have paid most of the recall costs while Takata and its customers thrash out how to divide responsibility.

Trading in Takata shares was temporarily halted on Friday after the Nikkei business daily initially reported it was preparing for a possible bankruptcy filing.

($1 = 103.0200 yen)

(Additional reporting by Chang-Ran Kim in Tokyo; Editing by Stephen Coates and Muralikumar Anantharaman)



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