Toshiba's Westinghouse to file for U.S. bankruptcy Tuesday-sources

By Kentaro Hamada and Taro Fuse

TOKYO (Reuters) - U.S. nuclear developer Westinghouse Electric Co plans to seek bankruptcy protection from creditors on Tuesday as it struggles with losses that have thrown its Japanese parent Toshiba Corp into crisis, people familiar with Toshiba's thinking said.

Pittsburgh-based Westinghouse, crippled by cost overruns at two U.S. projects in Georgia and South Carolina, will file for protection under Chapter 11 of the U.S. Bankruptcy Code, the people told Reuters on Tuesday.

One of the sources has direct knowledge of the decision and one has been briefed on the matter.

Toshiba media representatives could not immediately be reached for comment outside office hours. On Monday it said it was premature to comment on a potential bankruptcy. Westinghouse also declined to comment.

A Westinghouse bankruptcy filing will help limit future losses for Toshiba, but it still falls far short of drawing a line under its problems.

The move will trigger complex negotiations between the Japanese conglomerate, its U.S. unit and creditors, and could embroil the U.S. and Japanese governments, given the scale of the collapse and U.S. state loan guarantees for new reactors.

A worry for Prime Minister Shinzo Abe is that a bankruptcy would give President Donald Trump cause to criticise Japanese firms operating in the United States.

The U.S. utilities that operate the two nuclear plants are among Westinghouse's biggest creditors, owed the work that has yet to be completed and potential penalties, sources have said.

But one source played down potential opposition from the utilities.

"They should welcome that Toshiba, the parent, has given 800 billion yen in guarantees," he said. "There's not really any logic to stopping a Chapter 11 now."

Moody's Japan K.K. on Tuesday welcomed the prospect of bankruptcy for the parent. A Chapter 11 filing "would be credit positive, because this action could limit Toshiba's contingent liabilities," the ratings company said, maintaining its Caa1 corporate family rating and senior unsecured debt rating with a negative outlook.

(Reporting by Kentaro Hamada and Taro Fuse; Additional reporting by Sarah Cassella; Editing by William Mallard and Susan Thomas)