MagnaChip refinances through $225 million bond

The Korean semiconductor company will use the proceeds to redeem its costly existing debt.
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MagnaChip has bucked the market through expansion into smartphones
<div style="text-align: left;"> MagnaChip has bucked the market through expansion into smartphones </div>

Korea’s MagnaChip Semiconductor, which is listed on the New York Stock Exchange, raised $225 million on Tuesday through an eight-year high-yield bond.

The company, which designs and manufactures analogue and mixed-signal semiconductor products, priced the 6.625% senior notes at 99.5, representing a 448bp spread over the 2021 US treasuries. Moody's upgraded the company to B1 from B2 in June.

MagnaChip will use the proceeds to take out its existing $203.7 million in senior debt. Those notes were originally issued in April 2010 as part of a $250 million offering and carry a hefty 10.5% coupon, which means the company is on the hook for $21.4 million a year in interest costs through to maturity in 2018. The new deal will cut those payments to less than $15 million.

The semiconductor industry has faced difficult conditions recently, with global revenue falling by 3% during 2012, but MagnaChip managed to buck that trend by focusing on growth opportunities in smartphones, tablet PCs and power products — a shift in strategy that helped it to book 6.1% revenue growth last year.

Investors may question whether MagnaChip can continue to outperform without a stronger recovery in global demand, but the company has plenty of ability to service its debt as it is lightly geared, with no other outstanding bonds besides the 2018 notes that it plans to redeem, and has plenty of free cash flow — enough to cover payments on the 10.5% notes more than six times.

The deal was offered to professional investors in the US under Rule 144a. Information on the distribution was not available at the time of going to press.

Barclays and Morgan Stanley were bookrunners.

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