Debt-Burdened Freescale Hires Bankers for IPO

We finally have some news on Freescale Semiconductor’s plans to go public again.

The chipmaker has hired Deutsche Bank and Citigroup to handle its IPO, Bloomberg News is reporting. Credit Suisse and Barclays will also work on the deal.

Austin, Texas-based Freescale expects to use funds raised by the IPO to pay off $1.2 billion in debt it has coming due in 2014, Bloomberg says.

This IPO would be the second time Freescale makes a trip to public markets. Motorola spun off Freescale in 2004. In 2006, Blackstone led a consortium of PE firms to take Freescale private in a $17.6 billion deal. Other buyout shops involved in the deal include the Carlyle Group, Permira and TPG. At the time, the $17.6 billion transaction was the largest tech buyout in history.

Last week, Freescale reported that fourth quarter sales jumped nearly 15% to $1.1 billion for the period ended Dec. 31 from $951 million for the same time period in 2009. Net losses narrowed to $102 million for the quarter from $114 million loss in 2009. Adjusted EBITDA for 12  months ended Dec. 31 was $1.1 billion. Long-term debt stood at roughly $7.6 billion as of Dec. 31. (Freescale also has $602 million in other liabilities)

Not surprisingly, much of Freescale’s debt came from the Blackstone-led buyout. The chipmaker had only $832 million in long-term debt in September 2006 (plus an additional $353 million in other liabilities), according to an earnings statement from that time. It now has $7.6 billion in long-term debt.

Now I’m used to PE firms piling debt onto companies that they acquire. They typically pass this debt onto the next buyer, whether through a sale or an IPO. In Freescale’s case, this will be the retail investor, which is egregious. But the IPO is expected to do well.

Just look at NXP, a Dutch chipmaker bought by KKR, Bain, Silver Lake, Apax and AlpInvest in 2006 for $11.1 billion. The PE firms loaded NXP up with about $6 billion in debt. NXP went public last year and is currently trading well above its $14 IPO price. On Tuesday, shares of NXP were up 27 cents to $27.50 in mid-day trading.

“The IPO market is pretty strong based on high valuations today versus anytime since 2008,” says a banker.