Tokyo, March 28, 2017 -- Moody's Japan K.K. has confirmed Toshiba Corporation's Caa1
corporate family rating and senior unsecured debt rating, and its
Ca subordinated debt rating.
The rating outlook is negative.
At the same time, Moody's has affirmed Toshiba's commercial paper
rating of Not Prime.
This rating action concludes the review for downgrade initiated on December
28, 2016.
RATINGS RATIONALE
"The confirmation of the ratings primarily reflects Toshiba's very
poor capital structure and significant risks regarding potential cash
outflows associated with the restructuring of its overseas nuclear power
business, which could materially pressure the company's financial
profile and liquidity," says Masako Kuwahara, a Moody's
Vice President and Senior Analyst.
"The rating action also considers the likelihood that the planned
sale of all, or part, of the company's memory business
could meaningfully mitigate these risks, although the timing and
the scale of the sale are uncertain," adds Kuwahara,
also the Lead Analyst for Toshiba.
Toshiba expects to post negative equity as of FYE3/2017 as a result of
posting impairment charges related to its nuclear projects in the US.
The company's liquidity should remain pressured, given sizeable
contingent liabilities and short-term debt as well as potential
acceleration of payment as a result of breach of financial covenants regarding
some of its long-term debt.
A successful sale of the memory business would help the company 1) strengthen
its capital, 2) secure funds for any additional costs arising from
the restructuring of its overseas nuclear power business, and 3)
reduce debt.
Toshiba intends to spin off its memory business on April 1, 2017
and transfer it to a new company, to be named Toshiba Memory Corporation,
in preparation for a whole or partial sale to a third party during FYE3/2018.
Given these factors, Toshiba's main banks are likely to remain
supportive of the company to maximize the value to be realized by the
sale of the memory business. But there is a degree of uncertainty.
Meanwhile, Toshiba's potential filings for chapter 11 by Westinghouse
Electric Company LLC (unrated), if it materializes, would
be credit positive, because this action could limit Toshiba's
contingent liabilities.
The negative outlook reflects the risks 1) that additional costs related
to restructuring its overseas nuclear power business may be higher than
currently expected, 2) that the valuation achieved for the sale
of its memory business may not be sufficient to cure its capital structure
and liquidity, and 3) of uncertainties regarding the viability of
Toshiba post the restructuring and sale of whole or partial stakes in
its core businesses.
Upward rating pressure could arise if Toshiba can successfully complete
the sale of its memory business, strengthen its capital, stabilize
earnings and cash flow, and cap additional costs relating to its
nuclear power projects at a level within its capacity to pay.
Toshiba could face renewed downward rating pressure if the sale of its
memory business is not successful, and/or any increase in costs
related to its nuclear power projects are beyond our expectations.
In addition, further evidence of a challenged liquidity position
or a non-curable breach in its bank debt covenants would also likely
place immediate pressure on the rating.
Moreover, if Toshiba's revised corporate governance structure fails
to function properly, leading to a further deterioration in its
financial metrics, then immediate negative rating pressure is likely.
Evidence of further material accounting irregularities would also likely
lead to a similar result.
The principal methodology used in these ratings was Global Manufacturing
Companies (Japanese) published in August 2014. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Toshiba Corporation, headquartered in Tokyo, is one of the
largest integrated electronics companies in Japan.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's Japan K.K. is a credit rating agency registered
with the Japan Financial Services Agency and its registration number is
FSA Commissioner (Ratings) No. 2. The Financial Services
Agency has not imposed any supervisory measures on Moody's Japan K.K.
in the past year.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Masako Kuwahara
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
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Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 813-5408-4110
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Releasing Office:
Moody's Japan K.K.
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Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
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