Tepco’s Banks Said to Mull $19 Billion Loan Tied to Projects

Tokyo Electric Power Co.’s banks are considering 2 trillion yen ($19 billion) in new loans whose repayment will be tied to income from projects carried out by the operator of the crippled Fukushima Dai-Ichi nuclear plant, three people familiar with the matter said.

Lenders including Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. are discussing with the utility, known as Tepco, making project finance loans linked to individual ventures such as rebuilding aging thermal power plants, said the people, who asked not to be identified because the talks are private. Tying loans to particular projects limits financiers’ exposure to Tepco’s default risk, the people said.

The funds would help Tepco expand its business as it pays for an estimated 11 trillion yen cleanup of the nuclear plant wrecked by an earthquake and tsunami in 2011 that sparked the worst nuclear crisis in a quarter of a century. The utility, which returned to profitability in the six months ended Sept. 30, plans to complete a revised 10-year business plan this month to secure support from its lenders and the government.

“Tepco has no choice but to seek loans from banks” given it can’t raise funds from the bond market, said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA. “It has to tolerate whatever loan structures that banks think are reasonable for them. Banks at the same time have to incorporate their shareholders’ concerns over Tepco’s future.”

Tokyo Electric spokesman Tatsu Yamagishi said the company is unable to discuss any details of its borrowing plans. Sohei Nishimaki, a spokesman in Tokyo for Sumitomo Mitsui, declined to comment, as did Kazunobu Takahara, a Mitsubishi UFJ spokesman.

Junk Rating

Tepco, which has junk credit ratings from both Moody’s Investors Service and Standard & Poor’s, will probably see its debt expand to 4.5 trillion yen by the year-end, according to Bloomberg calculations based on its earnings data. Its banks are seeking ways to mitigate risks associated with the potential for default while keeping their pledge to support the utility.

The company has a B1 rating from Moody’s and a B+ score from S&P, both four levels below investment grade. Japan’s Rating & Investment Information Inc. ranks it BBB-, one step above junk.

Banks and insurance companies have been converting part of 2 trillion yen in emergency loans in 2011 and a 1.07 trillion yen finance plan agreed under a government bailout for the utility into private placement bonds, whose repayment takes priority over uncollateralized loans in the event of bankruptcy.

The private placement notes backed up by the utility’s generation and transmission assets totaled 815.5 billion yen as of September, according to the utility’s earnings data.

Tepco last sold bonds publicly in September 2010 in a 30 billion yen offering paying a 1.155 percent coupon. The cost to insure Tokyo Electric’s debt has fallen 88 basis points this year to 358.1 basis points as of Dec. 12, and is down from a high of 1,762.2 in October 2011, according to CMA data.

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