The U.S. unit of Takata Corp. is considering filing for Chapter 11 protection under the federal bankruptcy code, a source close to the matter said Friday, a move apparently aimed at seeking a sponsor to help pay for the cost of the global recall of its air bag inflators that have been linked to at least 15 deaths worldwide.
The recall-related cost to be shouldered by the Japanese auto parts supplier and automakers is estimated to reach ¥1 trillion (about $9.7 billion).
The cost could expand, especially in the United States, where the number of Takata’s inflators to be recalled is expected to total around 70 million and 11 deaths linked to its exploding air bags have been confirmed by U.S. safety regulators.
The liabilities of Takata’s U.S. unit exceeded its assets by nearly ¥30.5 billion as of the end of March.
Takata shares fell to an almost six-month low on the news and after KKR & Co. dropped out of the bidding.
Takata’s shares declined 1.75 percent to ¥337 as of 3 p.m. in Tokyo trading, and its market value has plunged 73 percent in the past year to $260 million.
Speaking at an earnings briefing in Tokyo, Takata executive director Yoichiro Nomura said there has been no change in the company’s stance that it prefers out-of-court proceedings both at home and abroad.
On Friday, Takata reported a group net profit of ¥18.28 billion for the April to September period, compared to a ¥5.58 billion loss a year earlier. The turnaround was attributable to the sale of a U.S. subsidiary, which more than offset mounting recall-linked costs.
Suitors Autoliv Inc., Key Safety Systems Inc., Flex-N-Gate Corp. and Daicel Corp. — bidding along with Bain Capital LP — proposed bankruptcy for Takata’s U.S. unit at meetings with automakers last week in New York as a way to limit liabilities, people familiar with the process said. KKR has dropped out of the bidding, separate sources said.
Takata hired Weil, Gotshal & Manges LLP to help weigh options that could include bankruptcy or a sale, people with knowledge of the matter said last month. The Japanese manufacturer may choose to seek court protection just for its U.S. unit, one of the sources said.
Takata hired Lazard Ltd. earlier this year as its financial adviser to pursue strategic options including a sale after regulators in the U.S. and Japan ordered expansions of recalls that were already the biggest in the auto industry’s history.
The company’s air bags use a propellant that can be rendered unstable after long-term exposure to heat and humidity, leading their inflators to rupture and spray deadly metal shards at vehicle occupants.
At the meetings last week, Autoliv, Key Safety Systems and Flex-N-Gate dropped their proposals for Takata to also file for bankruptcy in Japan, after automakers expressed concern about the potential disruption for sub-suppliers in a previous round of talks, the people said.
Of the remaining suitors, only the Daicel-Bain pairing is still recommending that Takata file for bankruptcy in Japan, the people said. Daicel shares plunged as much as 19 percent, an intraday record, after cutting its fiscal year operating profit forecast on Wednesday.
Regulators have ordered recalls scheduled into 2019 that could eventually exceed 100 million air bags used by more than a dozen automakers, including Honda Motor Co., Volkswagen AG and General Motors Co. The automakers have a vested interest in who ends up taking over Takata because they’ve already shouldered billions of dollars in repair costs.
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