(Reuters) – Hedge funds led by Baupost Group LLC are poised to make a profit of $ 170 million in less than three months from a bet tied to the bankrupt unit of Toshiba Corp. ( 6502 .T ) Electric Corp, according to three people familiar with the matter.
Baupost and GSO Capital Partners LP, the credit arm of the private equity firm Blackstone Group LP ( BX. N ), in September bought at a discount the claims of South Carolina utilities had against Toshiba derived from nuclear power Westinghouse projects could not finish. The funds are expected to be repaid in five years.
But Toshiba on Tuesday secured about $ 5 billion in financing, which the Japanese company has said it will use to immediately pay for settlements with public services in South Carolina and Georgia that are trapped in unfinished nuclear power plants .
The reduced time frame for reimbursements will boost the expected returns of the hedge fund group, the sources said. In total, the funds will raise approximately $ 170 million from the refund, an approximate increase of 9 percent, the sources said.
The funds had purchased the $ 2.2 billion in public service claims from South Carolina, SCANA Corp ( SCG.N ) and state-owned Santee Cooper, for 91.5 cents on the dollar.
Reuters reported in October that the Baupost Group had acquired most of the agreement, with the GSO participating. It was not possible to determine how much each fund would obtain.
GSO, Baupost and Westinghouse refused to comment.
For Baupost, the windfall comes as good news for the $ 31 billion hedge fund at the end of a year in which its returns are low in single digits.
With the agreement in force, Toshiba, which has been shaken by accounting scandals, as well as the financial demise of Westinghouse, is seeking to further cut ties with its subsidiary, which is now on sale in bankruptcy.
Plans to demand reimbursement from Westinghouse for payments to public services, and then sell the right to be reimbursed for the nuclear business.
PUBLIC SERVICES EXPENSES
By purchasing the agreement this fall, the hedge funds had bet that Toshiba would remain solvent until it completed the payments in 2022.
The proceeds of the funds are obtained at the expense of SCANA and Santee Cooper, the utilities that own the failed VC Summer Project in South Carolina, which lost the $ 170 million selling discount claims.
"It will be a problem with regulators regarding the prudence of their decision," said Todd Shipman, credit analyst at Standard & Poor's Global Ratings, SCANA. "It will be up to (SCANA) to state their case (about) why they did what they did and when."
Utilities said they sold the agreement to mitigate the risk that the Japanese company would not complete the payments.
Along with a parallel Westinghouse nuclear plant in Georgia, the two projects were hailed as the beginning of the US nuclear renaissance. UU
But after years of delays and billions of dollars of cost overruns in V.C. Summer and the Vogtle project in Georgia, Westinghouse introduced Chapter 11.
After spending $ 9 billion on construction, SCANA and Santee Cooper left the South Carolina project in July, saying it no longer made sense from the point of economic view.
A SCANA spokeswoman said the company was not aware of Toshiba's commercial discussions when it sold the deal, and the company wanted to make sure it had funds for the benefit of its customers.
Georgia Power, a unit of Southern Co ( SO.N ) that leads the Vogtle project, held in its settlement. On Tuesday, he said Toshiba would pay the rest of its $ 3.68 billion guarantee agreement by December 15. Those payments were originally agreed for 2021.
Georgia Power has said it intends to complete the Vogtle project.
Report by Tom Hals in Wilmington, Delaware and Jessica DiNapoli in New York; additional reports from Svea Herbst-Bayliss; Editing by Noeleen Walder and Lisa Shumaker