Statement by J. Michael Baxley, Senior VP and General Counsel
Meeting of the Santee Cooper Board of Directors, July 27, 2017
TERMS OF THE TOSHIBA GUARANTY SETTLEMENT
History: On May 23, 2008, as part of the original Engineering Procurement and Construction (EPC) contract that first began the process of licensing and building VC Summer Units 2 and 3, Toshiba provided credit support for the project by signing a parental Guaranty for its subsidiary Westinghouse. Under the terms of the Guaranty, Toshiba agreed to pay the obligations of Westinghouse under the EPC contract up to 25% of the total amount spent by the Owners on construction, and also included providing a warranty of title for work done on the site. The Guaranty was reaffirmed by Toshiba on October 27, 2015, when the Owners converted the EPC to a fixed price option. After filing bankruptcy, Westinghouse is no longer able to complete construction under the fixed price option, and its obligations under the EPC are now due and owing, underwritten by the Toshiba Guaranty.
Toshiba has come forward to settle the Guaranty in the following way:
1. Toshiba will pay the VC Summer Owners a total of $2.168 Billion in settlement of its parental Guaranty of Westinghouse’s payment obligations under the EPC contract.
2. Based on ownership percentages, this computes to $1.192 Billion to SCE&G for its 55% share and $976 Million to Santee Cooper for its 45% Project ownership share.
3. Payment will be made over time, beginning in October 2017 through September of 2022. The first payment is in the amount of $150 Million, monthly payments then drop to the $30 Million range.
4. This settlement is agreed to regardless of whether the Owners complete one or both of the nuclear units presently under construction or abandon the project.
5. As a part of this settlement, Owners take responsibility for verifying and resolving the mechanics liens pending against the V.C. Summer Project, which as of today are $210,636,460.07. If paid by Westinghouse through the WEC bankruptcy estate, the first $100 Million of lien payments will be a credit against the Guaranty. Because the existence of a mechanics lien is a violation of the warranty of title, a portion of the $2.168 Billion settlement figure was intended by Toshiba to cover these existing liens.
6. In return for this settlement, the Owners release Toshiba from all claims of any kind arising from the EPC contract, and further agree to forbear exercising any contractual remedies under the EPC through September of 2022 (such as calling on existing letters of credit).
7. The Owners do not release any claims against Westinghouse in this settlement.
8. In the event of default on payments by Toshiba, Owners can exercise our contractual remedies, may declare the entire unpaid amount of the settlement immediately due, and pursue arbitration or litigation against Toshiba to collect the amount due.
9. Against its promissory note, Toshiba has offered the security of segregating into a separate fund for the benefit of the Vogtle and VC Summer owners its own claims against Westinghouse and the value of EMEA companies and operations it owns (EMEA is outside of the bankruptcy process), and paying these sums over to the Owners to be applied against Toshiba’s obligations under the Settlement Agreement. The Westinghouse bankruptcy court has already approved this distribution.
10. The Toshiba Board approved and accepted this settlement during its meeting on July 26, and the SCE&G Board earlier this week took the same action.