It’s easy to imagine nuke plant operator TEPCO going bust over the nuke plant crisis, except for the fact that it’s largely backstopped by the government.
All Japanese utilities are highly rated by the ratings agencies because they enjoy an unusual level of regulation and protection.
That’s why the market is alarmed by the fact that relations between TEPCO and the government seem to be fraying. As Markit’s Gavan Nolan pointed out, CDS spreads are widening for the company, after the government said TEPCO committed an “unforgivable mistake” this weekend. The mistake: accidentally issuing a false radiation reading at the plant that was orders of magnitude too high. That caused a delay in the ongoing crisis operations, and it only confirmed the general sense that TEPCO is mishandling the crisis.
If there’s some sense that TEPCO could lose government support — and it’s not clear that this is even possible, especially over something like this — the safety of TEPCO debt is called much more into question.
Hence the CDS spike.
This chart is via CMA: