Freescale Semiconductor Ltd. continues to take advantage of prevailing low interest rates to refinance big portions of its sizable long-term debt.
The Austin company said that late Monday it completed an offering of senior debt securities debt securities that will pay off about $884 million of existing debt that was scheduled to mature in 2018. The new debt offering is for $960 million and matures in 2022. It carries an interest rate of 6 percent, which is 3.25 percentage points lower than the previous debt. The new debt amount is larger than the debt it replaces because extra funds were used to make a premium payment to investors for retiring their debt securities early.
The company says it has been using the low-rate environment this year to refinance its debt and reduce its annual interest payment burden.
With the latest debt offering, the company estimates it has pared its annual interest payments by more than $70 million in various transactions since the start of the year.
At the end of the third quarter, the company reported having $6.4 billion in long-term debt, down by $101 million from the year before.
Much of its debt stems for a leveraged buyout that occurred in late 2006. Freescale reported last week that its total interest expense for the 12 months ended Sept. 27 was $491 million.
The debt restructurings are part of the company’s stated goal of reducing its expenses while it pushes for expanded sales and bigger profit margins.
Analyst Dave Novosel with Gimme Credit said the refinancing moves help the company cut spending on interest while giving it more time to expand the business and generate more cash.
But Novosel said Freescale still has a very heavy debt load compared with the size of its business, which generated $3.95 billion in revenue last year.
“They have a long way to go to get leverage (debt) down to a more manageable level,” Novosel said. “They have made progress over the past year, but this is a long road ahead.”