Hedge Funds to Buy Scana's $2 Billion Toshiba Penalty

Updated on
  • Claim shared with Santee Cooper valued at 92 cents on dollar
  • Scana stock drops most in seven years as probes also step up

Scana Corp., the South Carolina utility owner that’s owed a $2.2 billion penalty by Toshiba Corp., sold rights to the claim to hedge funds at a discount.

The penalty stems from a settlement reached after the Japanese conglomerate bailed on unfinished nuclear reactors in the Palmetto State. The claim, which was shared with partner utility Santee Cooper, was sold at about 92 cents on the dollar, according to the company.

The transaction was arranged by the distressed-debt trading desk at Citigroup Inc., according to people with knowledge of the matter, who asked not to be identified because the information isn’t public.

"With Toshiba still facing challenges, we believe this was a crucial step to mitigate the risk and realize the value of these payments," Scana Chief Executive Officer Kevin Marsh said in a statement.

The move shifts the risk away from Santee Cooper and its customers, Leighton Lord, chairman of the Santee Cooper Board of Directors, said in a separate statement.

The sale allows the utilities to get cash now for the Toshiba settlement, instead of taking installment payments for five years starting in October. Santee Cooper said in a statement that its agreement to cash out at a discount doesn’t include the first installment of about $150 million due next month.

The buyers taking the other side of the trade were hedge funds, one of the people said, without naming the firms. Those parties are expecting to profit from the discount at which they purchased the claims from Scana.

Project Scrapped

Advisory firm Ducera Partners helped Scana carry out the trade, one of the people said. Representatives for Citigroup and Ducera declined to comment.

Scana’s stock recorded its biggest intraday drop in seven years, plunging as much as 8.1 percent Wednesday as it also faces a regulatory review of rates increases at the canceled reactors.

The South Carolina nuclear plants were being constructed by Toshiba’s now bankrupt subsidiary, Westinghouse Electric Co., which was overwhelmed by cost overruns from the project. Westinghouse abandoned the project, and Scana and Santee Cooper halted construction four months after the company’s bankruptcy.

An accord signed in July awarded $1.19 billion for Scana’s 55 percent stake and $976 million for the 45 percent allocated to Santee Cooper, formally known as the South Carolina Public Service Authority.

The sale comes amid Scana federal and state investigations into its handling of the canceled nuclear expansion project. Scana had asked state utility regulators for permission to recover $4.9 billion in expenses for the project before withdrawing the request in August to give officials more time for review.

— With assistance by Tiffany Kary

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