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Report: Hedge funds to profit from monetized VC Summer claims


According to Market Intelligence, December 2022


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Report: Hedge funds to profit from monetized VC Summer claims

Hedge funds, led by Baupost Group LLC, are expected to make about $170 million in profit from the monetization of claims against Toshiba Corp. tied to the abandoned V.C. Summer nuclear expansion, Reuters reported Dec. 6, citing people familiar with the matter.

SCANA Corp. and Santee Cooper agreed in late September to monetize a $2.17 billion guaranteed payment from Toshiba, the majority stakeholder of bankrupt V.C. Summer contractor Westinghouse Electric Co. LLC. The Japanese conglomerate had agreed to pay about $1.19 billion to SCANA subsidiary South Carolina Electric & Gas Co. for its 55% ownership interest in the scrapped reactors and approximately $976 million to Santee Cooper, known legally as South Carolina Public Service Authority, for its 45% project ownership.

SCANA and the board of directors for Santee Cooper agreed to sell their claims to hedge funds at a discount to get cash immediately, instead of taking payment installments for five years.

"The agreement pays 91.5[%] of the settlement claim and Santee Cooper will receive $831.2 million today for its 45[%] share," Santee Cooper said in a Sept. 27 news release announcing board approval of the monetization. "This payment eliminates the risk to Santee Cooper and its customers of collecting those dollars from Toshiba over the next five years."

Reuters reported that Toshiba secured about $5 billion in financing Dec. 5, which the company said it will use to "immediately repay settlements" to utilities that own the unfinished V.C. Summer and Alvin W. Vogtle nuclear plants in South Carolina and Georgia. Westinghouse was the lead contractor for both projects.

The sources told Reuters that the immediate repayments "will boost the expected returns" for the hedge funds, now expected to rake in roughly $170 million, or a 9% profit, from the claims. The South Carolina utilities lost the $170 million by selling the claims at a discount, in an effort to mitigate the risk that Toshiba would not remain solvent. The hedge funds' bet was that Toshiba would stay solvent until it completed payments in 2022.

Baupost and GSO Capital Partners LP, the credit arm of Blackstone Group LP, bought the claims in September, Reuters reported.

Georgia Power Co., which held on to its settlement, said in a Dec. 5 news release that the owners of the Vogtle nuclear plant expansion will receive by Dec. 15 all remaining scheduled payments from Toshiba, totaling $3.2 billion. The Southern Co. subsidiary said full payment of the $3.2 billion, of which its share is approximately $1.47 billion, will be used to benefit customers, adding that it removes a major risk tied to construction of the Vogtle reactors.