TEPCO: With $91 Billion In Debt, Got CDS?

Tyler Durden's picture

Now that the market has had some time to digest the events over the weekend, it may be time to hedge risk on the company most exposed to the nuclear shock in Japan, Tokyo Electric Power Company. The company was just downgraded by Goldman Sachs to Neutral (which means it held it as a Buy until now) as the firm does not see "a dividend hike"... We see far greater issues for the company's equity investors than just a dividend hike. Number one: TEPCO (9501.T) has over $90 billion in debt and roughly $30 billion in equity buffer. As Bruce Krasting points out vis a vis the equity - "it's gone." More from BK: "I used to work on financing these things. It's all long term leases. The actual debt behind the power plants is multiples of what they show on the balance sheet."

From Goldman's just released report:

TEPCO’s Fukushima No. 1 and No. 2 nuclear power plants were shut down following Friday’s earthquake, and the government declared a nuclear emergency at the site given cooling system and other issues. We believe the plants could be shut down for over a year given the probable response to this, and lower our forecasts for FY3/11 on to reflect this. Our Buy rating assumed a dividend hike to ¥70 in FY3/13, but we now believe this will be difficult and cut our forecast to ¥60, lowering our target price to ¥2,100 from ¥2,400 and our rating to Neutral. While on our Buy List, the stock fell 9.9% (TOPIX +4.0%); over the last 12 months, it fell 12.7% (TOPIX -1.6%).

Yeah, scratch the dividend hike. And here is something far more problematic for the company:

Even S&P had some choice words to say about the company back in January:

Standard & Poor's on Friday lowered the credit ratings of five electricity providers, including Tokyo Electric Power Co. (9501), or Tepco, and two city gas firms.

The utilities were knocked down a notch to AA minus from AA in a move that echoed the ratings agency's cut of Japan's long-term sovereign debt a day earlier.

In explaining the move, the U.S. rating agency cited the companies' "status as public utilities," noting that they are "crucial to the government's domestic energy policy." The Tokyo metropolitan government, Aichi Prefecture, and government-affiliated institutions were also downgraded to AA minus.

By contrast, S&P affirmed the ratings of Toyota Motor Corp. (7203), Canon Inc. (7751) and other Japanese companies rated AA. They are likely to maintain their ability to meet financial commitments even if Japan defaults on its debt, explains S&P.

And while readers call their sales coverage to see if CDS available in the name (and with $90 billion in debt there has to be), here is the company's summary financials. Once CDS trading resumes when London opens, this will be one to follow.

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dryam's picture

This company is simply blowing up.

Monkey Craig's picture

ouch! look out below

whatsinaname's picture

Just got an update from a friend in Japan. It seems the Western electric grid has a lot of spare electricity but works on a different frequency and cannot share with the eastern area which is crippled. Also, lots of food, water shortages in stores in Japan as lot of food comes from Northern region. Meanwhile, soya products costs soaring.

Bubbles...bubbles everywhere's picture

The word "harakiri" comes to mind.

bob_dabolina's picture

te-te-te-te-teh...not going to have money much longer


Leo Kolivakis's picture

Sunday nights are all about chilling...enjoy!

John McCloy's picture

 This is what I have been looking for out of ZH all weekend. What is the CDS liability for a record earthquake, tsunami, nuclear meltdown ramifications for an advanced technogical society like the nation of Japan which already had massive debt and is 3rd in U.S. debt holdings? You better believe those interest rates will be rising since this nation needs cash ASAP. And that is why we are taught always to save for a rainy day..well the Japanese need their money Tim and you better have it available. 

   That is why naked CDO's need to vanish and unchecked leverage in the CDS market needto be permitted so long as the firms which insure this CDS are permitted to go bankrupt. Eventually if CDS insuring firms are allowed to go bankrupt perhaps people will force capital to be raised for these asinine financial products that create TEMPORARY PROFITS and rely upon taxpayer dilution and subsidization. 

   Get a clue Washington. Good job Tyler. And a word to the wise..there is a reason we are taught never to gamble above your head and it because eventually on a long enough time line everything that can possibly go wrong to cause insolvency eventually will when there is not a single counterbalance to reckless speculation.

dark pools of soros's picture

you really think TPTB are going to stop this rigged shell game before it totally rots the neighborhood??  It is complicated enough to fool 95% of the public so why change?  People will just think inflation 'happens'  and that Unions and Pensions are problem, or MENA unrest is the problem, or natural disasters, or whatever the hell comes next - no football...  it just keeps on giving over and over...there is no end until we start eating each other

John McCloy's picture

  One of the top news stories today on Yahoo "Will there be no football"

  No they will try and try to distract until the people no longer care about the luxuries they used to enjoy. And yes one of the largest scams every pulling on the citizenry was allowing people to believe that on top of them being overly taxed that that extra 2% inflation is acceptable. Bottom line is that people are not educated enough and it is preyed upon. 

pitz's picture

Got gold?  If basic infrastructure companies like TEPCO go insolvent, then certainly, the monetary system is fucked.

Michael's picture

It's one thing to present a reasonable assessment of the financial impact of the situation, and another to convey heartless indifference. You can feel the indifference in the tone of the reporters voices, see it their plastic smiles and attitudes. It's done in order to invoke the response their corporate overlords want to convey for their benefit.  It just disgusts me. Remember, this is not the attitude the rest of of world sees on TV. Other world news is orders of magnitude better than the US.

This is the biggest beef I have with the the US mainstream media. Our citizens parrot the indifference heard on TV which makes it worse.

pitz's picture

Ouch, 1% ROA?  That is messed up, even for a utility.....  ZIRP or not...

disabledvet's picture

nationalization--with obvious legal protections against creditors/etc...this is Japan after all.  In every way this is the worst time to sell let alone downgrade especially given the extraordinary job the BOJ has done keeping the yen an uber currency even with interest rates at zero with the obvious expception of the Japanese banking system which is a wreck already.  Unless and until that changes i'd be considering entry points here especially given the approach of the US Navy which is the foremost authority in matters nuclear and now may get to try out some of those cool "nuclear clean up toyz."  Should an after shock or even another quake hit Tokyo itself however...

John McCloy's picture

Dear Mr. Geithner. 

Unfortunately our nation has undergone a catastrophe. Luckily you owe us 862 Billion dollars. Would you be so kind as to send it on over ASAP. We know you are good for it.

P.S.- We may not be able to participate in upcoming debt auctions for obvious reasons. Should we take our money and BTFD and potentially double our money solving all our problems or will 33 Liberty not be buying futures for the remainder of the year.


The Japanese

Michael's picture

You know a large portion of that fund will be redeemed in the coming months. To bad the US doesn't have a backup savings plan like that.

PassedOut's picture

They are TBTF and will be bailed out like everyone else. This is the miracle of fiat money!

ziggy59's picture

what?? they're lying??



Mine Is Bigger's picture

From the Nikkei Japanese site, The No. 3 reactor at the Fukushima No. 1 nuclear plant exploded.

Michael's picture

There could be more to come. There's like 6 in trouble.

virgilcaine's picture

This is the 'White Swan' event.. when an event turns catastrophic,  but the Risks were known.


No such thing as a Black Swan.. someone always knows something. 

Money Squid's picture

On Zero Hedge we are supplied with articles on how to hedge risk?

"...it may be time to hedge risk on the company most exposed to the nuclear shock in Japan, Tokyo Electric Power Company."

prophet's picture

Accidents waiting to happen continue to reach new highs.  Been saying that for a few years now.  I also believe that the probably of a series of low probability events occurring is also increasing dramatically, albeit from minuscule to measurable. 

Forty year old reactors, America's D rated civil infrastructure, forty year old monarchies, twenty five year debt and credit binges, complete lack of instrumentation and enforcement in the financial services industries, and, well you get the idea.  Yet MCD launches CMG and the next super wave of technological innovation is just around the corner.