In the next couple of weeks, bondholders will vote on the fate of Covalent Materials, the Japanese technology group formerly known as Toshiba Ceramics, which was the object of a leveraged buyout in 2006. Since then, the company’s earnings have halved as competition from lower cost producers has ratcheted up and the company’s technological edge has become duller. Debt that was sustainable in more profitable times has become too burdensome today, even with Japan’s long-term zero interest rate policy.
If the bondholders vote against the company’s proposed financial restructuring, Covalent will be heading for the bankruptcy court. So far, only a handful of Japanese companies have been felled by Japan’s two lost decades (and counting).
A few months ago, chipmaker Elpida was sold to Micron Technology after it finally ran out of time. Today, consumer electronics company Sharp is struggling to avoid an equally unhappy end as rating agencies cut its debt to junk and it struggles to renegotiate a deal that will see Taiwan’s Hon Hai take a 10 percent stake. In July, Sanko Steamship filed for bankruptcy with $2 billion of debt – a victim of shipping oversupply, rising fuel prices and declining freight charges.
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