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Flood Of Tech Deals Tests Investors' Appetites

A rash of tech deals is testing investors' appetite for risk.

A rash of tech deals is testing investors' appetite for risk. With deals for Advanced Micro Devices, Spansion and TMM Technologies launching last week, Reynolds & Reynolds and Open Text already out there and Freescale Semiconductor on the horizon, banks are pushing a sector to which not everyone is comfortable lending. "There have been a slew of tech deals lately," said one investor, who commented that the "cyclicality of the business" is a turnoff for him. "Technology is a true risk ­ it could be a good deal today and gone tomorrow."

Two deals ­ UBS' $240 million credit for TMM and Bank of America's $575 million deal for Spansion ­ hit the market last Wednesday. The $2.5 billion Morgan Stanley-led credit for AMD launched last Thursday. Investors said tech deals generally need standout pricing. "There's definitely a premium these deals need to pay ­ especially on the bigger ones," said one portfolio manager. "There's so many acquisitions within the space it's hard to get a real valuation. Everyone wants to buy stuff now. These guys leverage themselves up ­ where are the true valuations? It's a bit disheartening, this whole sector."

UBS' deal for TMM backs the Santa Ana, Calif.-based company's acquisition of Printed Circuit Board Group from Tyco International. The credit consists of a $40 million revolver and a $200 million first-lien term loan. Both tranches are priced at LIBOR plus 2 1/2%. TMM is a supplier of printed circuit boards to original equipment manufacturers and electronic manufacturing services companies. A company spokesperson could not be reached.

The Spansion financing consists of a $175 million ABL revolver and a $400 million secured term loan, according to an investor. Another investor said the credit seemed to be "asset-lite." The company recently announced it would sell two older manufacturing facilities in Japan for about $150 million in cash to Fujitsu, an IT and communications solution provider. A spokeswoman for Spansion, a provider of Flash memory technology based in Sunnyvale, Calif., declined comment on what assets backed the revolver. All tranches are priced at LIBOR plus 3 1/4%, according to an investor. Leverage is 1.4 times on the term loan and 2.7 times total.

B of A's $2.5 billion term loan for AMD backs the $5.4 billion acquisition of ATI Technologies. Price talk is LIBOR plus 2-2 1/4%, according to a banker (CIN, 7/28). The acquisition, which was announced July 24, has cleared the anti-trust waiting period and is pending shareholder approval. A shareholder meeting is set for Friday in Toronto. The transaction is expected to be completed by the end of the month, according to a spokeswoman. Moody's Investors Service rated the new facility Ba3.

The glut of tech deals seemingly has not hurt Royal Bank of Canada's $465 million Open Text deal, which was well oversubscribed and saw a pricing flex-down two weeks ago, despite pro forma leverage of 4.1 times (9/29).

Leverage on tech companies is one area both investors and ratings agencies have been tracking. Standard & Poor's released a report last Thursday noting that credit trends for the global technology market have "shifted to clearly negative for the year to date, from fairly balanced, but slightly positive, during 2005." The report specifically cited the upcoming $17 billion leveraged buyout of Freescale Semiconductor (see related story, page 4) as dramatic evidence of companies willing to take on increased amounts of debt.

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