Takata files bankruptcy, reaches deal to sell assets to KSS via plan

By Caroline Salls

Pittsburgh, June 26 – Takata Corp.’s main U.S. subsidiary, TK Holdings Inc., and some of its North American affiliates and subsidiaries filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the District of Delaware after reaching an agreement in principle under which Key Safety Systems (KSS) will sponsor a restructuring plan for the sale of substantially all of Takata’s global assets and operations to KSS.

According to a news release, the total purchase price for the proposed transaction will be ¥175 billion, or $1,588,000,000.

Takata and its Japanese subsidiaries also filed proceedings under the Civil Rehabilitation Act in Japan in the Tokyo District Court.

Restructuring agreement

Under the restructuring agreement, KSS will acquire substantially all of Takata’s assets, except for some assets and operations that relate to Takata’s manufacturing and sale of phase-stabilized ammonium nitrate (PSAN) airbag inflators.

The PSAN-related operations are expected to be run by a reorganized Takata following the transaction closing and eventually will be wound down.

Takata said it expects to continue to meet demand for airbag inflator replacements without interruption.

“Although Takata has been impacted by the global airbag recall, the underlying strength of its skilled employee base, geographic reach and exceptional steering wheels, seat belts and other safety products has not diminished,” KSS president and chief executive officer Jason Luo said in the release.

“We look forward to finalizing definitive agreements with Takata in the coming weeks, completing the transaction and serving both our new and long-standing customers while investing in the next phase of growth for the new KSS.”

Takata chairman and CEO Shigehisa Takada said in the release “KSS is the ideal sponsor as we address the costs related to airbag inflator recalls, and an optimal partner to the company’s customers, suppliers and employees.

“The combined business would be well positioned for long-term success in the global automotive industry.”

The company said KSS plans to retain substantially all of Takata’s employees across the world on comparable employment terms as currently provided.

In addition, KSS has held in-depth discussions with Takata’s major original equipment manufacturer customers and has jointly developed a transaction structure and operating plan to facilitate ongoing supply of Takata parts.

Takata said KSS also plans to continue to support and utilize its presence in Japan, and does not intend to shut down any of Takata’s manufacturing facilities there. Furthermore, KSS intends to establish an Asia regional headquarters in Tokyo and plans to retain Takata’s existing non-PSAN supplier contracts to maintain an uninterrupted supply chain. KSS also intends to invest in many of Takata’s other worldwide manufacturing facilities and technology and research and development centers.

KSS has substantially completed its due diligence, and Takata said the companies are working toward finalizing a definitive agreement in the coming weeks, with an expected transaction close in the first quarter of 2018.

Excluding recall-related costs and liabilities, Takata said it has continued to produce healthy profits and cash flows from its existing businesses. Nevertheless, the company said it has determined that it is in the best interests of the company and its stakeholders to address the recall-related issues in conjunction with the proposed sale.

Takata said it intends to use the Civil Rehabilitation Act and Chapter 11 processes to continue to work with its customer group and KSS to finalize and execute restructuring support agreements.

Reorganized Takata is expected to emerge from the Chapter 11 process and operate independently from KSS under the supervision of a plan administrator and oversight board.

Airbag issues

As expected to be detailed in its restructuring plan, Takata said it intends to use the Civil Rehabilitation and Chapter 11 processes to address the costs and liabilities related to airbag inflator recalls, including to fund its remaining obligations under the terms of a plea agreement with the Department of Justice and consent orders entered into by Takata with the National Highway Traffic Safety Administration (NHTSA).

Under the DOJ plea agreement, Takata paid a $25 million fine and was required to fund two restitution funds, including a fund of $125 million to meet liabilities to current or future personal injury claimants and a fund of $850 million to satisfy a portion of the claims of OEM customers who purchased airbags containing PSAN inflators.

The personal injury claimants fund was funded on March 29. Consistent with the DOJ plea agreement, the agreements in principle with the company’s customer group and the proposed restructuring terms provide for the proceeds of the sale to KSS to be used to fund the $850 million OEM restitution fund.

After setting aside sufficient funds to capitalize the reorganized company following completion of the Chapter 11 process, any remaining sale proceeds after satisfaction of the foregoing obligations and the payment of other claims entitled to priority or payment in full would be used to fund recoveries to holders of general unsecured claims, the release said.

Financing commitment

Takata said it has obtained a commitment for up to a ¥25 billion, or $227 million, debtor-in-possession revolving credit facility to be provided by Sumitomo Mitsui Banking Corp.

Additionally, the Japanese OEMs have committed to provide Takata with valuable accommodations and liquidity enhancements during the Civil Rehabilitation, and the company is working with the customer group on an agreement to do so on a global basis.

The DIP financing in Japan and the accommodations and additional liquidity support in both Japan and the United States, along with Takata’s cash flow from operations, are expected to provide sufficient liquidity to continue to operate Takata’s business and serve automotive customers globally in the ordinary course.

Debt details

According to court documents, as of March 31, Takata’s consolidated financial statements reflected assets totaling $3.9 billion and debt totaling $3.7 billion, and the consolidated financial statements of the debtors and their non-debtor subsidiaries reflected assets totaling $1.7 billion and debt totaling $1.6 billion.

In addition to numerous creditors with warranty, recall and indemnification and litigation claims in undetermined amounts, the company’s largest creditors are:

• The National Highway Traffic Safety Administration, based in Washington, D.C., with a $180 million fines and penalties claim;

• Daicel Safety Systems of Beaver Dam, Ky., with an $11.37 million trade claim;

• XPO Logistics Worldwide, based in San Francisco, with a $5 million trade claim;

• Special Devices, Inc. of Mesa, Ariz., with a $3.97 million trade claim;

• ARC Automotive of Morgantown, Ky., with a $2.06 million trade claim;

• O&S California, Inc. of San Diego, with a $1.76 million trade claim;

• Pegasus Auto Parts of Nuevo Leon, Mexico, with a $1.49 million trade claim;

• Kayaku Safety Systems of Nuevo Leon, Mexico, with a $1.39 million trade claim; and

• Praxair Mexico S de R of San Salvador Xochimanca, Mexico, with a $1.13 million trade claim.

Nagashima Ohno & Tsunematsu and Weil, Gotshal & Manges LLP are serving as legal counsel to Takata. PricewaterhouseCoopers is serving as financial adviser, and Lazard is serving as investment banker to Takata.

Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel, KPMG is serving as financial adviser, and Jefferies LLC is acting as lead financial adviser to KSS.

Tokyo-based Takata manufactures and sells motor vehicle seat belts, airbags, steering wheels, interior trims and child restraint systems. The Chapter 11 case number is 17-11375.

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