LONDON Dutch chip vendor NXP BV has completed a debt swap under which it will retire secured and unsecured debt for higher yielding, shorter-term, higher priority bonds. As a result NXP has reduced its debt by about $465 million and its annual interest burden by $30 million, the company said.
The debt-swap move has met with partial success and some bondholders were reported to be taking legal advice over the move.
NXP, loaded with $6.0 billion of debt since its formation as a spin-off from Philips, has issued new euro-denominated 10 percent super priority notes due 2013 and new U.S. dollar denominated 10 percent super priority notes, also due 2013, in return for a mix of notes of fixed and floating rates with expiry dates ranging from 2013 to 2015.
NXP expects to exchange $420 million of old notes for $90 million of U.S. dollar denominated notes and 131 million euro (about $170 million) of old notes for 29 million euro (about $38 million) of euro-denominated notes.
As a result NXP's debt is set to reduce by approximately $465 million and the related annual interest expense by approximately $30 million.
"We offered our unsecured and secured debt for the super-priority and the take up was 39 percent of 250 million euros," said Karl Sundstrom, chief financial officer of NXP. "It means $30 million per year less and a gross reduction of debt of $465 million. Of course I would have liked to have had more, but at the same price," he said.
Sundstrom emphasized that this was the first major debt-swap of the current recession conducted in Europe, although others had been conducted in the U.S., most notably at Freescale Semiconductor.
NXP has a parallel history with Freescale with both companies being spun out from major systems companies – in Freescale's case Motorola – and both being taken over by private equity consortia, which loaded them with debt in the expectation that markets, and the ability to service that debt, would continue to expand.
Freescale has been subject to legal action in the United States and there have been rumors of discontent among NXP bondholders. Some are reported to have argued that NXP needs a more radical re-organization.
"We are in contact with our bondholders and they are well aware of the structure [of NXP], and the total debt level of the company." Sundstrom said that with the conclusion of the debt-swap the company was entering a "quiet period" and he could not comment on whether it is part of a larger re-organizational plan.
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