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| Pete Groth |
Improving performance and strong lending relationships have enabled Fairchild Semiconductor to amend and increase its $480 million credit facility by $150 million to call $350 million of 10 1/2% senior subordinated notes. The move will reduce the South Portland, Maine-based company's interest expense by around $33 million a year and reduce total debt by $200 million. Administrative agent Deutsche Bank led the amendment for the deal, which is co-led by Bank of America. Fairchild is using $213.9 million of cash balances and $154.5 million from the increased credit line to call the notes, which have a 5 1/4% premium. The term loan was increased from $300 million to $450 million and the $180 million revolver was unchanged. In addition to the tenor being extended to six years, Fairchild also cut the spread on its "B" loan by 50 basis points. "Investors were pleased to see the resulting balance sheet was going to have a lot less debt and much better cash flow," noted Pete Groth, v.p. and corporate treasurer.
The spread on the term loan was lowered to LIBOR plus 1 3/4% from LIBOR plus 2 1/4%. Last August, the company refinanced the $300 million term loan reducing the interest rate 1/4% to LIBOR plus 2 1/4%. Most of the original lenders came back, but not all. "I think there were a few people who didn't like the new rate--thought it was too aggressive or wasn't in their cost of capital, but the other guys stepped right up," Groth said. He declined to comment on which lenders dropped out of the syndicate, but noted that the debt had been trading very well going into the deal.
In addition to the pricing improvement, some covenants were also changed. "[The covenants] got a little more favorable for the company, but well in line for what investors expected," Groth said. The minimum senior leverage ratio was two times, but the new senior leverage ratio is 2.75 times. "Investors realize that since you are taking on more senior debt but overall have less debt they were comfortable with the ratio," he concluded.
Since a spin out seven years ago, Fairchild has gone from being financed primarily with high-yield notes to mostly senior debt and since 2001 has cut debt by $500 million. The firm does have $200 million of convertible notes, but the nearest maturity is February 2009.