According to the ratings agency Fitch, Freescale has more than $10 billion debt, but Freescale CEO Rich Beyer reckons it can be handled.
The debt was loaded onto Freescale by its private equity owner Blackstone when it bought Freescale at a valuation of $17.6 billion in 2006.
Fitch lists the various debts as:
$640 million outstanding under the company's $690 million revolving credit facility due December 2012 (as well as approximately $15 million outstanding under letters of credit);
Approximately $3.4 billion of a senior secured term loan expiring Dec. 1, 2013;
$500 million of floating rate senior notes due 2014;
$1.5 billion of 9.125% PIK senior notes due 2014;
Approximately $2.34 billion of 8.875% senior notes due 2014; and
Approximately $1.5 billion of 10.125% senior subordinated notes due 2016.
Beyer is confident Freescale can cope with this debt burden:
"Fortunately the first payment of debt is the revolver which is $675 million due Dec 2012", Beyer told me last week, "we've got effectively four years before the debt needs repayment or needs to be re-negotiated."
"We're confident we can weather this storm," added Beyer, "2009 and 2010 will be relatively disappointing, but we have plans in place, and by the end of 2012 we should have sufficient liquidity to pay off the revolver."
"We have a plan in place to generate sufficient cash to deal with the debt", said Beyer, "the challenges are significant, no question, but when we dissect the issues one by one and ask: Can we fix this?' We say: Yes we can'. And: Can we fix the next one? And the answer is: 'Yes we can.' When I joined I knew the issues. They're perfectly normal type issues."
And what is your comment David on all this blibber blubber? For example, how does Beyer plan to fix the mobile division, particularly with Motorola phones in such distress?
It's very well known what he's doing with the mobile division, Anon, he's been trying to sell it for 6 months. At first he was trying to sell it as a whole but that failed. Now he says he's trying to sell it piece-meal.
Blibber blubber? Well CEOs have to show a bit of confidence to rally the troops and Beyer was an officer in the US Marine Corps.
Well it seems then to me that they are royally screwed with their mobile division, selling it piece meal will not be pretty at best, and a closure at worst. Headed to the same fate as the Micronas consumer division in my opinion.
In any case a result which means a valuation far below the 17.6bn and probably below the 10bn debt, nothing at all like a "perfectly normal type of issue".
So the confidence without detailing a serious plan sounds like a facade...
Anon, I couldn't agree more. Beyer's got the toughest job in the semiconductor industry. Clearly Blackstone screwed up in paying too much, and putting too much debt on the company, but they do appear to be doing the right thing in giving the company a brief to plan a long-term strategy. It's horrible. But what else do you do except give up, hold a fire-sale and leave everyone in the lurch?