NXP Cash Concerns Remain After Debt Buyback Offer

LONDON, June 5 (Reuters) – Bondholders of Dutch semiconductor company NXP BV said dwindling cash may force the firm to restructure its debt, despite a planned $300 million bond buyback to cut leverage and interest costs.

NXP, one of Europe’s largest privately owned firms, on Thursday offered to buy back unsecured dollar and euro bonds at between 30.5 percent and 35 percent of face value.

A bond buyback might be a good use of cash, “but the company does not have a lot to play with,” said Johnny Debuysscher of investment firm Petercam, a holder of the bonds.

“The offer is worth considering but we want to know more about the company’s plans for its cash flows, not just for the next six months but for 18 months and longer. Because if the economy remains bad it may end up needing to raise more cash,” Debuysscher said.

NXP, owned by private equity firms including Apax, Bain Capital and KKR, is grappling with a heavily leveraged balance sheet and continued low global demand for semiconductors.

The unsecured investors — owed a total of about $1.65 billion — have been given first priority in the offer ahead of secured bondholders.

The bonds soared in price on the buyback news, up from around 19 cents on the dollar on June 2 to about 35 on Friday, according to Reuters pricing, while the cost of insuring its debt against default fell sharply.

Analysts at CreditSights said on Friday that bondholders should “take the money and run” given the company’s falling cash balances and “high uncertainty” over its liquidity in 2010.

CreditSights said the offer was better than a proposal in March, which paid investors a lower price to replace old bonds for new. That offer attracted few takers.

CLEARING THE WAY

A bondholder source said the buyback might be followed by a wider restructuring in which NXP’s owners would inject new money into the company’s balance sheet in exchange for lenders accepting a reduction in the amount they are owed.

“This offer helps clears the way for a restructuring deal between the secured lenders, who are owed around $3 billion, and the equity holders,” the source said.

NXP did not immediately return a request for comment on Friday.

In its latest results, published in April, NXP said it owed lenders almost $6.5 billion and had about $1.7 billion in cash available.

Thursday’s trading update shows NXP’s liquidity levels had dropped by about $330 million, after accounting for a $300 million loan repayment, CreditSights said.

CreditSights said continued “heavy cash burn” in the second half of 2009 would, “in the most optimistic scenario”, leave the company with about $1 billion in cash at the end of the year.

This is “unlikely to be adequate for 2010 if the end demand (for NXP’s products) does not pick up in 2010”, it said.

In the trading update, NXP said it expected second-quarter revenue growth to be at the higher end of prior guidance of a 10 to 25 percent increase. However, it warned this improvement was largely because of “supply chain replenishment” rather than a wider uptick in the semiconductor market. ($1=.7041 Euro)

By Tom Freke

(Editing by Erica Billingham)