Toshiba’s loan guarantee at Plant Vogtle may be hollow: Moody’s

By David Pendered

The agreement announced by Georgia Power regarding a loan guarantee of $3.68 billion by the parent of the Plant Vogtle contractor may be hollow because of the parent’s weak financial position, according to a comment by Moody’s Investors Service.

Plant Vogtle, construction, 2014

Plant Vogtle experienced cost overruns and construction delays that led to Westinghouse filing bankruptcy papers. Photo from 2014. File/Credit: energyathaas.com

Georgia Power announced June 9 it had reached an agreement with Toshiba, the parent of Vogtle contractor Westinghouse Electric. Terms call for Toshiba to honor its $3.68 billion guarantee on costs for nuclear units 3 and 4, which are being built at the Vogtle plant near Waynesboro.

In the statement, Thomas Fanning, president and CEO of Georgia Power’s parent company, Southern Company, said:

  • “We are happy to have Toshiba’s cooperation in connection with this agreement which provides a strong foundation for the future of these nuclear power plants.”

Moody’s noted that this development is credit positive for Georgia Power and the other co-owners of the facility – Oglethorpe Power Corp., Municipal Electric Authority of Georgia, and the City of Dalton – according to Moody’s analysts.

However, Toshiba may not have the resources to honor the commitment, Moody’s determined. Moody’s has rated the company’s credit worthiness at Caa1. Recovery rates typically range from 90 cents to 95 cents on the dollar for firms of a Caa1 rating that go into default, according to a Moody’s chart.

Westinghouse AP 1000

Westinghouse Electric Co. describes the AP 1000 being built at Plant Vogtle as the, “safest and most economical nuclear power plant available in the worldwide commercial marketplace.” File/Credit: theconstrutionindex.co.uk

In an issuer comment released Tuesday, analysts observed:

  • “While the agreement with Toshiba is a positive development, Toshiba’s financial situation remains weak, which draws into question its ability to honor the terms of the guarantee. MEAG Power’s Project M, P and J current ratings and negative outlook do not incorporate the possibility of a Toshiba bankruptcy, following the Westinghouse bankruptcy filing.”

Moody’s already has downgraded Georgia Power’s credit rating because of the uncertainty related to the outcome of Westinghouse’s bankruptcy proceedings. The March 20 rating action changed the rating outlook from stable to negative, while affirming an A3 rating on about $8 billion of debt securities.

The statement issued at the time included this comment from Michael Haggarty, associate managing director:

  • “The negative outlook on Georgia Power reflects the increased credit and regulatory risk facing the company due to the uncertain future of Westinghouse, the construction contractor building the new Vogtle nuclear units, and its parent company Toshiba.”

The statement also noted that Georgia Power had maintained the A3 rating even though Georgia Power’s cash flow has fallen below the standards for an A rating:

  • “The negative outlook also considers cash flow coverage metrics that have declined as the Vogtle project has proceeded, with Georgia Power’s CFO pre-working capital to debt falling from the 26 percent – 27 percent range from 2011-2013 to 23 percent on average from 2014-2016 and 21 percent at 31 December 2016. This ratio is now slightly below our methodology rating guidelines of between 22 percent and 30 ercent for the A rating category, a significant credit weakness considering the higher risk entailed in the new nuclear construction project.
  • “Georgia Power also exhibits a somewhat constrained liquidity position, particularly considering its large construction program, with approximately half of its $1.75 billion of bank credit facilities dedicated to providing liquidity support for variable rate demand bonds.”

Georgia Power also announced June 9 it had reached an agreement with Westinghouse to transition the project management from Westinghouse to Southern Nuclear and Georgia Power. The agreement awaits approval from the Westinghouse board of directors, “and certain other conditions including bankruptcy court approval,” the statement from Georgia Power said.

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

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