Summary
Microchip Technology Inc. (MCHP) filed an 8-K on March 24, 2020, detailing significant financing and debt-related transactions. The company entered into a commitment letter for a $615.0 million, 364-day senior secured bridge term loan facility. This facility is intended to fund the cash portion of upcoming exchange transactions where Microchip will repurchase approximately $615.0 million in aggregate principal amount of its 1.625% Convertible Senior Subordinated Notes due 2025. In exchange for these notes, the company will pay cash and issue approximately 3.1 million shares of its common stock, with the exact amounts subject to adjustment based on the stock's trading price.
Key Highlights
- 1Secured a $615.0 million, 364-day bridge loan facility from various commitment parties to finance upcoming debt exchange transactions.
- 2Entered into exchange agreements to repurchase approximately $615.0 million of its 1.625% Convertible Senior Subordinated Notes due 2025.
- 3Will issue approximately 3.1 million shares of common stock as part of the note exchange, alongside cash payment.
- 4The actual cash and stock amounts for the exchange are subject to adjustment based on Microchip's common stock price during a specified averaging period.
- 5Amended its existing credit agreement to permit the bridge loan and modified financial covenants.
- 6The amended financial covenants include a tiered total leverage ratio (max 6.00:1.00, then 5.75:1.00, then 5.25:1.00) and senior leverage ratio (max 4.75:1.00, then 4.25:1.00, then 3.75:1.00).
- 7The note exchange transactions are expected to close on March 27, 2020, and are being conducted as a private placement under securities law exemptions.
Frequently Asked Questions
The $615 million bridge loan facility is intended to provide the necessary cash to fund the cash portion of Microchip's upcoming exchange transactions for its 1.625% Convertible Senior Subordinated Notes due 2025.
The Exchange Transactions involve Microchip privately repurchasing approximately $615.0 million in aggregate principal amount of its outstanding 1.625% Convertible Senior Subordinated Notes due 2025. In return, holders will receive a combination of cash and shares of Microchip's common stock.
The exact amounts of cash and shares of common stock to be issued are subject to adjustment based on the trading price of Microchip's common stock during an averaging period beginning March 23, 2020. The initial estimate of 3.1 million shares is based on an assumed stock price of $60.56.
The Second Amendment was necessary to permit the new $615 million bridge loan. It also adjusted Microchip's financial covenants, specifically the total leverage ratio and senior leverage ratio, setting new maximum thresholds that will phase in over time, becoming stricter after the first and second anniversaries of the amendment.