Japan’s Takata Corp is considering a bankruptcy filing for its US unit as the airbag 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mainly in the United States, and have led to the industry’s largest ever recall, with about 100mn ordered to be withdrawn globally.
A Chapter 11 filing for its US 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 finalise terms, and reach an agreement with automaker creditors, the source said.
Takata yesterday 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.
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 airbag-related costs have pummelled Takata’s profits, with the company last year booking its third annual loss in four years, while its share price has dropped 90% since 2014.
The company yesterday said the risk of rising airbag-related costs meant that it would not issue a dividend for the first half. Still, it raised its full-year net profit forecast to ¥20bn ($193.87mn) from the previous estimate of $13bn, 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 $13bn for recalls announced so far, based on calculations from experts and automakers including General Motors. It also faces US lawsuits. These potential liabilities would dwarf the company’s war chest of around ¥72.4bn 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 yesterday after the Nikkei business daily initially reported it was preparing for a possible bankruptcy filing.