Tepco’s Loan Said to Have ‘Strict’ Profit and Assets Covenants

Tokyo Electric Power Co.’s new loan that is part of the nation’s largest bailout in more than a decade will come with “strict” covenants triggering repayment, according to three people familiar with the matter.

Banks offering the loan to Tepco, as the utility is known, can ask for repayment in full if its profit or net assets fall 25 percent below targets stipulated in the company’s business plan for two consecutive quarters, the people said. The conditions will apply to a 370 billion yen ($4.6 billion) portion of Tepco’s 1 trillion yen loan, they said.

The funds are part of Japan’s bailout for the owner of the stricken Fukushima Dai-Ichi nuclear plant. Banks, whose loans supported Tepco after the March 11 disaster locked it out of the bond market, are requiring stringent repayment conditions in exchange for offering low interest rates to the utility, the people said today.

“This is a negative for bond investors,” because the covenants mean banks will be repaid first in case of a default, Hisayoshi Nogawa, a Tokyo-based structured credit strategist at BNP Paribas SA, said in a telephone interview today. “Chances that things will get so bad for the company as to trigger these conditions are pretty low.”

Under the business revival plan announced last month, the utility aims for an unconsolidated profit of 106.7 billion yen in the year ending March 2014, based on an electricity rate increase and the gradual restart of its Kashiwazaki Kariwa nuclear station after April 2013. Tepco forecasts net loss will narrow to 201.4 billion yen this fiscal year, from a 781.6 billion yen shortfall in the period ended March 31.

“We are continuing to negotiate with financial institutions regarding the details of financings,” Tepco’s spokesman Masanori Suto said by telephone today.

The company has 4.25 trillion yen of bonds outstanding, including 449 billion yen due this year, according to data compiled by Bloomberg. It also has 3.72 trillion yen of long-and short-term loans that aren’t guaranteed, the utility said last month.

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