Municipal Electric Authority of Georgia (MEAG) is eyeing letters of credit (L/Cs) as compensation should Westinghouse Electric Co fail to deliver to the authority a nuclear power plant it is building.

A subsidiary of Toshiba of Japan, Westinghouse is reeling from exploding construction costs in its US operations that are now threatening the solvency of the contractor.

Westinghouse is contemplating bankruptcy while Toshiba is considering selling a majority stake in its memory chip business to fund its subsidiary's losses.

Doubtful guarantee

Parent company Toshiba has guaranteed that Westinghouse will finish the work, but the soundness of that guarantee is in doubt because of concerns over the Japanese company's financial stability.

As well as Toshiba's guarantee, MEAG could call upon US$2.1 billion of unspent construction proceeds.

L/C situation

The authority also has US$920 million of L/Cs issued by Japanese banks that could be drawn upon if Westinghouse files for bankruptcy.

"We don't see that the Westinghouse bankruptcy would impact our ability to access the L/Cs or the parent guarantee of Toshiba," MEAG's general counsel, Peter Degnan, has said.

Troubled times

Westinghouse has been building the power plant in Georgia along with a similar facility in South Carolina since 2013.

Both projects have been plagued by cost overruns, design changes and delayed approval processes.

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