Spansion, the Sunnyvale flash-memory maker, chose to borrow $74.8 million of the $85 million available to it under an agreement with UBS, the Swiss investment banker that holds auction-rate securities that were worth $121.9 million when Spansion first bought them. The investment has a current estimated market value of $107.4 million, according to a filing Spansion made Monday.
Auction-rate securities (ARS) are typically typically corporate or municipal bonds with a long-term maturity horizon whose interest rates are reset periodically through auctions held as often as every week. The market for them has been frozen since February making it impossible for investors to access them for want of any buyers.
UBS has agreed to make good on the value of Spansion’s original investment by guaranteeing that it will buy the securities sometime between June 30, 2010 and July 2, 2012. In the meantime UBS agreed to lend Spansion up to 75 percent of the current market value of its auction-rate securities, the same offer it extended to Conceptus, the Mountain View developer of a permanent birth control system for women.
Spansion will pay an interest rate equal to the lesser of the London Interbank Offered Rate (LIBOR) plus a percentage rate between 1.25 percent and 2.75 percent, depending on the amount of the advance or the average rate of interest or dividend rate paid on its own ARS.
Under the agreement, UBS can call the loan at any time for any reason.