TOKYO -- Sumitomo Mitsui Banking Corp. announced Monday it has set credit lines of up to 25 billion yen ($224 million) to help Japanese air bag maker Takata provisionally stay in business after it filed for bankruptcy protection.
Debtor-in-possession financing is intended to provide working capital to a company even after bankruptcy proceedings have been initiated. Once the process is started, there is a high possibility that a company's partners will demand cash settlements due to diminished credibility.
On the same day, Takata filed for bankruptcy protection at the Tokyo District Court as it faces ballooning liabilities in connection with an extensive recall of defective air bags.
SMBC, the core banking unit of Sumitomo Mitsui Financial Group, which has a long-standing relationship with Takata as its main lender, independently established the credit lines with the company's accounts receivables as collateral.
According to Teikoku Databank, there are about 570 Takata subcontractors around Japan.
The spread of credit insecurity would make it difficult for the company to procure necessary parts, which could disrupt a stable supply of its products.
The new credit lines are aimed at alleviating insecurity among subcontractors and creating an environment where Takata can continue operating.