Dynamic Capital Toshiba Shares Tumble after S&P Global Downgrade Warning - Dynamic Capital

On Friday, a report released by the credit rating firm S&P Global, indicated that Toshiba Corp could be facing a credit rating cut by several notches if the firm winds up receiving financial assistance encompassing debt restructuring – sending the stock price down about 9%.  Toshiba’s credit rating has already taken a few hits over the last several months, receiving official downgrades in December and January (landing them with a CCC+ rating) because of a multi-billion-dollar write-down in its nuclear power business, which has faced significant setbacks recently.  However, the credit rating agency indicated that it expects banks to show flexibility in repayment options, including extending deadlines for loan repayments to avoid default, however the fact that Toshiba needs to request the assistance may still lead S&P Global to downgrade the company outlook.

If the S&P follows through with its downgrade, banks would likely be forced to charge Toshiba an even higher interest than its already paying (which is already relatively high), while it is still trying to recuperate from the crippling losses it suffered from a financial scandal in 2015 in addition to the nuclear write-down.  They also clarified that if the financial support Toshiba receives includes debt-equity swap (i.e. giving debtors partial ownership in the company in lieu of repaying the debt), they will consider that “selective default” – according to S&P analyst Hiroki Shibata during a telephone conference in Friday.  She went on to add, “In that event, we might cut its rating by several notches.”  This would follow directly in line with previous actions taken by the company a few years ago, with one of Toshiba’s leading competitors – Sharp Corp – ultimately resulting in Sharp shifting from a good credit rating down to a CCC-, after which their main business never bounced back.

On Thursday, Sumitomo Mitsui Financial Group, one of Toshiba’s primary lenders, agreed to provide the company with as much support as possible since it has been a good client for so long.  The other main creditor, Mizuho Financial Group, has been more silent throughout the matter, as a day earlier Toshiba executives asked creditors for an extension of a waiver for a loan covenant violation until the end of next March, according to sources close to the matter (per Reuters).  S&P’s Shibata also reported saying it’s their belief that Toshiba will be attempting to sell off its chip business in the near future – a transaction they will be eyeing closely, as the initially planned to only sell 20% but that has now been upped to the majority.