Conexant Systems Inc. bought itself some time with plans to offer as much as $250 million in debt last week.
The move gives the Newport Beach chipmaker a grace period before it has to start cashing out investments to meet looming debt payments due this year and next.
The debt offering should cover most of a cash shortfall the company expects in the coming year, according to Conexant.
Something had to be done.
Conexant, which makes chips for high-speed modems, set-top boxes and Internet phone calling, is ahead of schedule on a turnaround plan. But its heavy debt load has been a big loose end.
About $200 million in notes,one block worth $130 million and another for $67 million,come due in May.
Then a year from now, Conexant faces payments of $515 million.
In all, Conexant said it needs $840 million this year to meet its debt and operating expenses.
Conexant’s rebound is helping: the company is sitting on $465 million in cash as of Dec. 31. It expects to generate $105 million this year.
But before last week’s debt deal, Conexant still saw itself coming up $270 million short this year after debt payments and operating expenses.
Chief Financial Officer Scott Blouin talked of the prospects of a debt offering late last month at an investor conference in Park City, Utah.
The company plans to use the debt offering to cover an imminent shortfall and pay down the rest of its debt later by cashing out investments, he said.
A year ago, Conexant had something else in mind.
The company had hoped to cover part of its debts by cashing out its stake in Jazz Semiconductor Inc. in an initial public offering.
Jazz split off in 2002 and runs Conexant’s former chip plants.
Newport Beach-based Jazz was set to go public last year before withdrawing its offering.
The stock offering could have raised at least $200 million for Conexant, though it’s uncertain whether the chipmaker would have been able to sell all its stake at once or over time.
Conexant officials still expect a Jazz offering.
“We expect that company will likely go public in 2006,” said Bruce Thomas, director of investor relations, at Roth Capital Partners LLC’s investor conference in Dana Point last month.
Conexant has other investments it could tap.
The company owns warrants to buy shares in Newport Beach-based Mindspeed Technologies Inc., which spun off from Conexant in 2003.
Mindspeed, which is working on a turnaround of its own, now trades at about $4 a share, ahead of Conexant’s $3.41 strike price. If Mindspeed’s shares were to go as high as $11, Conexant’s stake could be worth $200 million.
In early 2004, Mindspeed traded at $11.
Conexant also owns about 17 acres of commercial real estate in Newport Beach near its headquarters. It’s worth around $50 million, according to Conexant.
The company is looking to rezone the property so a developer could build apartments or housing. That could double or triple the value of the real estate.
Conexant also has another $25 million in venture investments that could be cashed out.
