National Semi to pay higher rates on $1.5B loan to ease covenants
National Semiconductor agreed to pay an increased “margin” on the credit agreement it entered into in July 2007 for $1.5 billion that it used to repay money it borrowed to buy back its own shares in an accelerated stock repurchase plan announced the month before.
The additional margin of between 2.25 and 3.00 percent will depend on debt ratings the company receives from credit rating agencies Moody’s or Standard & Poors, which knocked down National’s rating a notch in December.
As part of the amended agreement, two covenants governing the loan were changed. The “minimum interest coverage ratio” was reduced for the period from June 1 through Aug. 31, 2010, which lowers the amount of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) the company needs to report in relation to the interest expense for the period.
Also, the company’s “maximum leverage ratio” was expanded, retroactively, from Nov. 30, 2008 through August 2010, meaning the company increased the amount of total debt it could hold in relation to its adjusted EBITDA.
National also agreed to prepay “not less than” $125 million of the amount it owes by the end of this month, in order to cut in half the last four installment payments of the loan.
