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Japanese airbag maker Takata files for bankruptcy, gets U.S. sponsor

[June 26, 2017] By Naomi Tajitsu

TOKYO (Reuters) - Japan's Takata Corp <7312.T>, the firm at the center of the auto industry's biggest ever product recall, filed for bankruptcy protection in the United States and Japan, and said it would be bought for $1.6 billion by U.S.-based rival Key Safety Systems.

In the biggest bankruptcy of a Japanese manufacturer, Takata faces tens of billions of dollars in costs and liabilities resulting from almost a decade of recalls and lawsuits. Its defective airbag inflators have been linked to at least 17 deaths around the world. Takata Americas, its U.S. arm, filed for Chapter 11 bankruptcy in Delaware on Sunday with liabilities of $10 billion to $50 billion, while the Japanese parent and subsidiaries filed for protection with the Tokyo District Court early on Monday.

Takata's total liabilities stand at 1.7 trillion yen ($15 billion), Tokyo Shoko Research Ltd estimated.

Final liabilities would depend on the outcome of discussions with carmaker customers who have borne the bulk of the replacement costs, a lawyer for the company said.

The filings open the door to the financial rescue by Key Safety Systems (KSS), a Michigan-based parts supplier owned by China's Ningbo Joyson Electronic Corp <600699.SS>.

In a deal that took 16 months to hammer out, KSS agreed to take over Takata's viable operations, while the remaining operations will be reorganized to continue churning out millions of replacement airbag inflators, the two firms said.

Takata will also receive a $227 million lifeline from its main lender, Sumitomo Mitsui Banking Corporation, in the form a debtor-in-possession financing.

KSS would keep "substantially all" of Takata's 60,000 employees in 23 countries and maintain its factories in Japan. The deal is meant to allow Takata to continue operating without interruptions and with minimal disruptions to its supply chain.

"We believe taking these actions in Japan and the U.S. is the best way to address the ongoing costs and liabilities of the airbag inflator issues with certainty and in an organized manner," Takata CEO Shigehisa Takada said in a statement.

Takada said he and top management would resign "when the timing of the restructuring is set".

His family - which still has control of the 84-year-old company - likely would cease to be shareholders.

Jason Luo, president and CEO of KSS, said in a statement the "underlying strength" of Takata's business had not diminished despite the airbag recall, citing its skilled employee base, geographic reach and other safety products such as seat belts.

The companies expect to seal definitive agreements for the sale in coming weeks and complete the twin bankruptcy processes in the first quarter of 2018.

The filings have, however, not resolved all issues, as Takata still needs to reach agreements with its carmaker clients on how to divvy up recall costs.

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Takata Corp. Chairman and CEO Shigehisa Takada attends a news conference after its decision to file for bankruptcy protection in Tokyo, Japan, June 26, 2017. REUTERS/Toru Hanai

Honda Motor Co <7267.T>, once Takata's biggest customer, said it had reached no final agreement on responsibilities for the recall. Like other Japanese automakers, Honda said it anticipated difficulties in recovering the bulk of its claims.

"We are already beyond the point where there is room for negotiations or complications," said Julie Boote, analyst at market researcher Pelham Smithers in London. "(Automakers) know they're not getting the money back but need the inflators."

UNPRECEDENTED RECALLS

Takata faces billions in lawsuits and recall-related costs to its clients, including Honda, BMW <BMWG.DE>, Toyota Motor Corp <7203.T>, which have been paying recall costs to date.

It also faces potential liabilities from class action lawsuits in the United States, Canada and other countries.

Global transport authorities have ordered about 100 million inflators to be recalled, as the ammonium nitrate compound used to inflate has been found to become volatile with age and prolonged exposure to heat, causing the devices to explode.

Industry sources have said that recall costs could climb to about $10 billion.

Takata produces roughly one-quarter of all replacement inflators, according to Valient Market Research, making it a significant supplier for now even as many automakers have shunned the company for future contracts.

Recall costs so far have pushed the company into the red for three years, and Monday's bankruptcy filings marked a low point of a slow and steady downfall of Takata, which was founded as a textiles company in 1933 that used its weaving technology to make lifelines for parachutes.

It began producing airbags in 1987 and at its peak became the world's No. 2 producer of the safety product. It also produces one-third of all seatbelts used in vehicles sold globally, along with other components.

The Tokyo Stock Exchange said its shares would be delisted on July 27. The stock has collapsed 95 percent since January 2014 as the recalls mounted.

($1 = 111.3000 yen)

(Reporting by Naomi Tajitsu; Additional reporting by David Shepardson on Washington D.C., Tom Hals in Wilmington, Delaware and Maki Shiraki and Tom Wilson in Tokyo, Writing by William Mallard, Editing by Stephen Coates and Himani Sarkar)

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