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Rating Action:

Moody's downgrades Toshiba Corp to Caa1; ratings on review for further downgrade

 The document has been translated in other languages

Global Credit Research - 28 Dec 2016

Tokyo, December 28, 2016 -- Moody's Japan K.K. has downgraded Toshiba Corporation's corporate family rating (CFR) and senior unsecured rating to Caa1 from B3.

Moody's has also downgraded Toshiba's subordinated debt rating to Ca from Caa3, and affirmed its commercial paper rating of Not Prime.

At the same time, Moody's has placed Toshiba's Caa1 CFR and long-term senior unsecured bond rating, as well as its Ca subordinated debt rating under review for further downgrade.

RATINGS RATIONALE

"The downgrade of Toshiba's ratings principally reflects Moody's deepening concerns over the sustainability of Toshiba's near-term liquidity, as well as the substantive and rapid erosion of its equity base," says Masako Kuwahara, a Moody's Vice President and Senior Analyst.

The downgrade comes after the company's announcement of a likely material impairment loss related to the acquisition of a nuclear construction and services provider in the United States, for the fiscal year ending March 31, 2017.

"Although Toshiba is still assessing the exact amount of the impairment loss, its financial metrics will likely deteriorate further, potentially resulting in a negative equity position," adds Kuwahara, who is also Moody's Lead Analyst for Toshiba.

Moody's explains that the impairment loss could further lead to a breach of Toshiba's bank debt financial covenants.

Moody's says that should this eventuate, Toshiba's ability to maintain its solvency would depend on whether its relationship banks are willing to provide ongoing support. The availability of such support in such a situation, is currently uncertain.

Moody's points out that prior to placing Toshiba's ratings on review for downgrade, the ratings carried a negative outlook.

The downgrade of Toshiba's ratings also reflects Moody's mounting concerns over the company's implementation of its corporate governance framework, especially in relation to its due diligence process for acquisitions.

Moody's has placed Toshiba's ratings under review for a further downgrade, because of Moody's continued concerns over the potential for a further deterioration in Toshiba's operating and financial performance, as well as the high level of uncertainty over the ongoing availability of liquidity support from its relationship banks — over the near term — to continue its core businesses.

On December 27, 2016 Toshiba announced that it would post several hundred billion yen (several billion US dollars) as additional goodwill related to the acquisition of CB&I Stone & Webster Inc. (unrated) by Westinghouse Electric Corporation (unrated), a subsidiary of Toshiba. The transaction completed at end-2015.

According to Toshiba, all or part of the goodwill — as a result of a large amount of provisions for additional project costs and is far in excess of the USD87 million initially estimated by Toshiba — will be written down as part of Toshiba's impairment test during FYE3/2017.

Prior to the announcement on December 27, 2016, Toshiba's balance sheet had already been deteriorating, due to its large-scale restructuring and write down of deferred tax assets; both of which reduced its equity capital to around JPY328.9 billion as of FYE3/2016. Moody's believes that — depending on the amount of impairment charges — Toshiba's net assets could decline significantly.

Toshiba plans to determine the amount of goodwill by the time it announces its 3Q results in mid-February 2017.

Moody's says that it is unclear as to whether or not Toshiba acted in accordance with its new corporate governance framework in the acquisition of CB&I Stone and Webster Inc. In particular, it is unclear as to whether or not Toshiba had made an appropriate investment decision, as defined under its corporate governance framework.

Moody's review of Toshiba's ratings will focus on: (1) Toshiba's ability to maintain adequate near-term liquidity; (2) the relationship between the company and its main banks; and (3) the magnitude of potential impairment losses related to goodwill along with the extent of erosion in its balance sheet.

Evidence of a worsening liquidity position or a non-curable breach in its bank debt covenants will likely place immediate pressure on the ratings.

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 and founded in 1875, is one of the largest integrated electronics companies in Japan. Its businesses range from electronic devices and digital products to home appliances and electric power generating facilities.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

No Related Data.
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