Sharp Obtains Secured Loan

television factory worker
Sharp, the well-known Japanese manufacturer of televisions, has borrowed a ¥360 billion secured loan that is equivalent to $4.6 billion, according to Businessweek.

In secured lending, borrowers put up valuable assets as collateral in order to borrow money. Typically, cars and homes are used as collateral. However, in business situations, a secured loan is usually tied to company assets, such as stock, equipment or facilities.

Sharp’s secured loan is scheduled to be dispersed in two parts of equal halves with the first half of $2.2 billion being paid to Sharp this year while the second half in the same amount is to be paid next June.

Sharp, a Japanese corporation based in Osaka, Japan, has been endeavoring to return to profitable status. The corporation has cut 10,000 jobs in the past and this recent borrowing is simply a continuation of efforts to return to solvency.

Sharp has been reeling from record losses. Currently the corporation has $8.9 billion in short-term debt on top of $3.9 billion in long-term debt, and this new loan is simply more debt that the company will take on.

As part of the collateral in the secured loan agreement, Sharp put up its Osaka headquarters and several factories. In the event that Sharp is unable to repay the loan, the corporate headquarters and factories can be seized and resold. This could potentially put the company further into debt or at least limit its ability to remain competitive and viable in the electronics industry. As a result of so much debt and vulnerability, the company had its credit rating cut to junk by Standard & Poor’s and Moody’s Investors Service.

Demand for televisions has steadily fallen, pushing companies like Sharp into hard times. The company was forced to widen its projected loss by eightfold to $3.1 billion ending in March 2013. Three months ago the company estimated a loss of $381 million.

This dismal projection has resulted in the company stock falling 71 percent lower than a year ago.