Source: Takata considers bankruptcy for U.S. unit

Air bag maker Takata Corp of Japan is considering a bankruptcy filing for its U.S. unit. The company is currently looking for a sponsor to help pay for accountabilities connected to its faulty inflators, a person informed on the subject told Reuters.

Takata has been occupied in choosing a financial backer for its reversal as it faces enormous costs associated to the worldwide recall of millions of potentially defective inflators. A company-appointed steering committee has engaged investment bank Lazard Ltd as an consultant for the process.

The company is straining to supply replacement parts for the potentially faulty inflators, which have been linked to more than 16 deaths worldwide, mostly in the United States. The incidents have led to the industry’s largest ever recall, with about 100 million instructed to be withdrawn globally.

The source said a Chapter 11 filing for Michigan-based TK Holdings, its U.S. unit, was one option it was studying, although no filing was expected soon. The unit accounts for almost half of Takata’s global sales.

A filing would not be forthcoming because the company still had to pick a sponsor and finalize terms. Further, it would have to arrive at a settlement with automaker creditors, the source said.

On Friday, Takata recapped its willingness to finalize a deal with its automaker customers over the restructuring, ideally by year-end. It added though that any decision eventually 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 resolution would be desirable to a court-ordered bankruptcy for all of the company’s global operations. Allowing the company to continue operations would ensure a steady supply of inflator replacement parts involved in the recall.

Sources told Reuters last month that the struggle over bankruptcy is expected to defer by months the designation of a rescuer. Likewise, completion of Takata’s restructuring plans that were expected to be completed this year would have to be moved back.

Bidders for the company include Sweden’s Autoliv and Japanese inflator maker Daicel Corp, sources have said. On the other hand, its creditors include the world’s leading automakers including the Renault/Nissan alliance, Honda Motor Co, and Ford Motor Co.

Escalating air bag-related costs have battered Takata’s profits. Last year, the company booked its third annual loss in four years. Moreover, its share price has dropped 90 percent since 2014.

The company said on Friday that the threat of soaring air bag-related costs meant that it would not issue a dividend for the first half.

Still, Takata raised its full-year profit projection to 20.0 billion yen ($193.87 million) from the earlier estimate of 13.0 billion. The company is banking on a boost from asset sales in the first half.

This forecast mostly leaves out the impact of the recalls as the company has only delineated a small number of related liabilities.

If Takata were found to be exclusively liable for the inflator defect, it could face a bill of about $13 billion for recalls announced so far, according to estimates from experts and automakers including General Motors.

It would also encounter U.S. lawsuits.

These impending liabilities would dwarf Takata’s war chest of around 72.4 billion yen as of the end of September. To this point, automakers have paid most of the recall costs while Takata and its customers resolve how to divide responsibility.

Trading in Takata shares was temporarily suspended on Friday following the Nikkei business daily’s initial report that it was preparing for a potential bankruptcy filing.

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