After Freescale and NXP, now it's Infineon going for debt buy-back. This allows companies to buy back their debt at a discounted rate and so reduce the level of interest payments they have to make on it.
When Freescale pioneered the idea of debt buy-back in the semiconductor industry in February, Freescale managed to reduce its $10bn of debt by $1.5bn to $2bn, reducing its annual interest payment from $700m to $600m. NXP was less successful, managing to reduce its debt by $465m.
Now Infineon says it's going to buy back up to €150m worth of its bonds. The difference between Infineon and Freescale/NXP is that Infineon got some value for its debt.
Infineon raised the debt to invest in its business, whereas NXP and Freescale had the debts imposed on them by their private equity owners KKR and Blackstone respectively, just to defray the purchase price for the two companies, and NXP and Freescale saw no benefit whatsoever from the debt.
Instead Freescale was landed with annual interest repayments of $700m a year on its $10bn debt, and NXP was landed with annual interest payments of $480m a year on its $6bn debt.
Infineon reckons it will buy back the debt at 25 per cent below par value of the bonds.
Infineon sharers have been leaping up in response to its re-financing plans. Back in March the shares stood at €0.41, now they're at €2.59.
Infineon' has €700m of convertible bonds maturing in June 2010, convertible at €10.23 each, and its bankrupt DRAM subsidiary Qimonda has an exchangeable note of €215m, maturing in August 2010 at a conversion price of €10.48 a share.
It's being said by Deutsche Bank that Infineon needs to raise about €850m over the next year.
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