Japanese chip firm backed by Carlyle, Unison averts bond default

TOKYO Fri Oct 5, 2012 5:52am EDT

TOKYO Oct 5 (Reuters) - Cash-strapped Japanese semiconductor materials maker Covalent Materials Corp, backed by private equity firms Carlyle Group LP and Unison Capital, has struck a deal with its bondholders to buy back some of the securities, thereby averting a default.

Covalent said in a statement on Friday the bondholders have approved the company's proposal involving a combination of buying back the outstanding bonds and extending their maturity in return for higher coupons.

The company said in July that it did not have enough cash to repay 53.3 billion yen ($679 million) in bonds maturing in February and sought extension of the maturity date. Later it had also offered to buy back the bonds at 76 yen against the face value of 100 yen.

U.S. buyout firm Carlyle and Japanese private equity firm Unison bought the technology company, formerly known as Toshiba Ceramics, from Toshiba Corp in 2006, at the peak of Japan's leveraged buyout boom.

It was a rare instance of the buyout industry making a purchase from a Japanese bluechip company. Carlyle owned a 45.6 percent stake in the company and Unison a 47.5 percent stake as of end-March.

But Covalent Materials has been facing tough times as prices for chips have fallen dramatically on weaker demand. Elpida Memory Inc, a maker of dynamic random access memory, filed for bankruptcy protection in February, while another chipmaker, Renesas Electronics Corp, has been seeking cash for survival.

Covalent will spend 21.3 billion yen to buy back part of the bonds initially. The maturity date for the remaining debt will be extended to February 2017 in return for higher coupons, the company said.

The company issued the bonds, originally worth 55 billion yen, in 2008.

If the bondholders had rejected the proposal, Covalent Materials' bonds could have defaulted, potentially leading the company into bankruptcy.