European semiconductor maker NXP, formerly Philips' semiconductor unit which was LBOed in 2006 by a consortium of KKR, Silver Lake and AlpInvest, reported it had drawn down $200 million on its revolver, after pulling another $400 million on November 26, effectively tapping out its credit facility availability. By doing this, NXP joins an infamous club consisting of Freescale, Clear Channel, and Harrah's, all of which recently drew down their available borrowings, scaring bond investors who are left wondering why the companies are in urgent need of expensive cash. As we discussed in the CCU case, this can be taken as a cheap-DIP alternative action, as hoarding cash in this manner traditionally leads to a restructuring.
Of course, NXP CFO Karl-Hendrik Sundstrom tried to put things in a good light: “In view of the continuing global financial turmoil we are drawing USD 200 million under our revolving credit facility. This is a proactive financial decision in order to secure availability of this facility in a turbulent financial market environment.”
Unfortunately the "proactive financial decision" will cause investors to flee for the exits when the bond market opens Tuesday, and we fully expect the company's 7.875% Notes due 2014, which already trade around 27, to drop another 15-20%.
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