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Weekly Downgrade Wrap-Up

As usual, we have a week’s worth of ratings actions on the debt of LBO-backed companies from the agencies, Standard & Poor’s and Moody’s Investor Services. This week the agencies must’ve been busy confusing all of us with changes to their ratings systems (S&P) and finding buyers for Warren Buffet’s stake (Moody’s) because there’s only one. Either that, or private equity portfolio companies have magically be relieved of their massive debt burden! Ha. What would I write about then?

Anyways, the company in the spotlight is Dutch semiconductor company NXP B.V., backed by AlpInvest Partners, Apax Partners, Bain Capital, Kohlberg Kravis Roberts & Co. and Silver Lake. S&P affirmed the company’s long-term corporate credit rating at ‘CCC’. In light of the company’s distressed debt exchange, lowered the ratings on the company’s secured and unsecured notes to ‘CC’ and placed them on CreditWatch negative while affirming the remaining notes at ‘B-‘. The company plans to undergo a distressed debt exchange on July 23. S&P calculates that the latest exchanges should have a net $26 million negative impact on NXP’s cash balances.

Since there’s only one, I dug up a little extra info on this company. In 2006, the buyout fivesome, led by Bain and KKR, carved the Philips Semiconductor business out of Royal Phillips Electronics NV in a €8.3 billion deal, which at the time worked out to about $10.5 billion. The company has operated at a loss during its PE ownership but showed signs of promise this week. NXP announced, alongside its distressed debt exchange, that it would spin off its underperforming digital TV business to focus on its higher performing mixed signal circuits. NXP also reported an increase in second quarter sales over first quarter, up around $200 million. The company expects sales to increase 10% to 20% in Q3 thanks to supply chain improvements.

The company still must repay $6.05 to its lenders, which has shrunk from its December debt load of $6.37 billion. However, that debt’s not due until 2013.