Carlyle, Unison-backed Covalent avoids bond default
Covalent, the Japanese semiconductor materials manufacturer owned by The Carlyle Group and Unison Capital, has averted a debt default by agreeing to buy back securities from its bondholders. Much like its counterpart Renesas Electronics, which is seeking capital to avoid bankruptcy, Covalent is struggling with falling demand, increased competition and a strong yen.
According to a company statement, 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. Covalent said in July that it had insufficient cash reserves to repay JPY54.3 billion ($679 million) in bonds due to mature in February.
Two months later the company offered to buy back the bonds at a price of JPY76 against the face value of JPY100, an improvement on its previous offer of JPY60.
Carlyle and Unison acquired Covalent - then known as Toshiba Ceramics - from Toshiba Corp. in 2006. The deal valued the asset at JPY91 billion and the debt financing, provided by Royal Bank of Scotland, Mizuho and Sumitomo Mitsui, amounted to JPY65 billion. As of March, Carlyle owned 45.6% of the company while Unison held 47.5%.
Servicing Covalent's debts has proved challenging due to the weak commercial environment. The company has two major business units, silicon wafers and ceramics, and the former was sold off to Taiwan-based solar wafer manufacturer Sino-American Silicon Products for JPY35 billion last year. The proceeds were used to pay down debt.
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