LONDON Senior lenders who provided $150 million to Freescale Semiconductor have filed suit against the chip maker over its attempt to exchange about $4 billion in notes for up to $1 billion in a new term loan.
The exchange has “unjustly enriched” noteholders because they have swapped nearly worthless notes for a valuable term loan backed by collateral, the lawsuit claims.
The news follows revelations Wednesday (March 25) that another debt exchange, that by NXP Semiconductors, has run into trouble and that bondholders are pushing for a wider re-structuring of the debt than the one in progress.
The lawsuit against Freescale was filed in New York Supreme Court on behalf of the ING Prime Rate Trust, several Babson and ING Investment Management collateralized loan obligations, and other lenders. The identities of the noteholders have not been revealed.
In February, Freescale asked existing lenders for an additional $1 billion to bolster liquidity as it grappled with declining sales. Noteholders were invited to swap their debt for the new loan if the existing senior lenders declined.
While noteholders are receiving only a fraction of the original value of their notes, they will have a substantially better chance of recovery if Freescale files for bankruptcy, the lawsuit said.
Freescale's exchange is an attempt to shrink an "unsustainable debt capital structure," according to Moody's Investors Service.
Without completing the exchange offer, Freescale's interest burden "may become a source of significant financial stress," Moody’s said in a report.
The lawsuit stresses the terms of the original loan barred Freescale from issuing new loans.