Takata files for bankruptcy in US and Japan

August 2017 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

August 2017 Issue

Japanese car parts manufacturer Takata has filed for bankruptcy protection in the US and Japan following the auto industry’s biggest ever product recall.

Speculation over the company’s future has raged for some time given that Takata is facing billions of dollars in liabilities over defective airbags the company produced, which have been linked to at least 17 deaths worldwide. Some of the airbags contained faulty inflators which expanded with too much force, spraying metal shrapnel. These issues have resulted in more than 100 million cars with Takata airbags, including around 70 million vehicles in the US, being recalled since concerns first emerged in 2007. Takata products were included in vehicles sold by at least 13 carmakers including Honda, Toyota and Volkswagen.

The bankruptcy filing by Takata is the biggest ever bankruptcy of a Japanese manufacturer. TK Holdings, the company’s US operations, filed Chapter 11 bankruptcy in Delaware on 25 June, listing liabilities of $10bn to $50bn. The Japanese parent company filed for protection with the Tokyo District Court the next day. The firm’s total liabilities are believed to be around $15bn. The company will be liable for costs and liabilities in the tens of billions going forward as it comes to terms with a decade of recalls and lawsuits. In January, Takata agreed to pay $1bn in penalties in the US for concealing dangerous defects, and pleaded guilty to a single criminal charge. Takata’s Japanese unit has received a commitment for up to a 25 billion yen debtor-in-possession financing from Sumitomo Mitsui Banking Corporation.

Takata also announced that US-based Key Safety Systems (KSS) has acquired all of the company’s assets, save for those relating to the airbags for $1.6bn. KSS will keep “substantially all” of Takata’s 60,000 employees in 23 countries and maintain its factories in Japan, the companies announced in a statement. The deal will allow Takata to continue operating without interruption and with minimal disruption to its supply chain. The companies expect to seal definitive agreements for the sale in the next few months and complete the twin bankruptcy processes in the first quarter of 2018.

Jason Luo, president and CEO of KSS, said: “Takata has deep management talent, a dedicated work force and a long history of exceptional customer service. 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 have not diminished. We look forward to finalising 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.”

Shigehisa Takada, chairman and CEO of Takata, said: “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. Throughout this process, our top priorities have been providing a steady supply of products to our valued customers, including replacement parts for recalls, and a stable home for our exceptional employees. This agreement would allow that to continue.”

The airbag scandal has weighed heavily on Takata’s finances over the last few years. The company reported a net loss of $715m for the year to March, marking Takata’s third year of losses. As a result of the company’s financial difficulties, a number of subsidiaries have been sold to pay fines and other liabilities.

Takata was founded in 1933 as a textiles manufacturer before moving into airbags in the 1980s. The company completed a series of acquisitions in the late 1980s which saw it grow into one of the world’s three largest airbag manufacturers. The company’s bankruptcy is not expected to disrupt the massive recall triggered by its faulty products.

Richard Summerfield