NXP Semiconductor is reported to be considering swapping a portion of its $6 billion in high-yield bonds for new secured bonds as the IC manufacturer intensified efforts to emerge from a crippling recession and slow-growth in several of its market sectors.
The company itself declined to comment on its reorganization plans but a report in the Financial Times of London on Wednesday (Feb. 25) notes NXP is working with JP Morgan Chase, Lazard and Morgan Stanley to restructure its bonds.
The move, if confirmed, would represent a virtual default on NXP's debt but it would also give the Eindhoven, the Netherlands-based company much-needed room to focus on reorganizing operations rather than use its available cash to meet bond obligations. NXP's bonds are currently trading for about 20 percent of their dollar value.
Standard & Poor's on Tuesday (Feb. 24) lowered NXP's credit rating another notch to 4 from 3, indicating a 30 to 50 percent "recovery in the event of default," compared with a previous recovery rating of 50 to 70 percent.
"The revised recovery rating for the senior secured notes primarily reflects our expectation of a higher level of debt outstanding assumed at our hypothetical default," S & P's said in a report.
"Furthermore, we consider that recovery prospects for senior secured noteholders are highly dependent on the value realized from the group's intellectual property assets pledged as collateral, which, in our view, creates greater uncertainty of recovery for secured creditors," the agency added.
There have been speculations in recent weeks that NXP could embark upon another round of corporate reorganizations following the January appointment of merger and acquisition specialist Rick Clemmer to replace Frans van Houten as CEO and president of the company.
The company is set to announce fourth quarter 2008 results on March 6 and is expected to detail any further reorganization activities then. Some industry sources had initially speculated the company could opt for a form of reorganization called "prepackaged bankruptcy" that would allow it to continue running operations and emerge faster from the debt restructuring action.
A "prepackaged bankruptcy," or "prepack", is a form of reorganization under which a debtor negotiates with and receives its creditors' blessings to its plans ahead of a Chapter 11 bankruptcy filing. The move would typically allow the debtor company to exit bankruptcy faster.
NXP appears to have decided against such an option, however. If the company successfully gets bondholders to accept its offer of new secured bonds to replace existing bonds, it would secure better terms, including relief from immediate payment, but possibly pay a higher premium on the debts.
In an e-mailed response to inquiries, NXP said it would update EE Times if it wants to make "any announcements."
The Financial Times report said the company is expected to announce the bond transaction on Thursday (Feb. 26.)