Mega-firms mark Freescale down 85%

One of the largest LBOs in history has been drastically written down in value by the majority of its owners, as a legal tussle with lenders erupts over an ‘accordion’ debt facility that greatly favours equity players Blackstone, Carlyle, Permira and TPG.

The equity value of Freescale Semiconductor, acquired at the height of the LBO boom in 2006 for $17.6 billion, has been written down to 15 cents on the dollar, according to sources close to the matter.

A source in the limited partner advisory community said three of the four private equity firms who backed the Freescale acquisition – The Blackstone Group, TPG, The Carlyle Group and Permira – have written down their individual stakes in the semiconductor maker by 85 percent. The source did not specify which firms had taken this step.

Reuters reported yesterday that Carlyle had written down its Freescale stake by 85 percent.

The write-downs are symptomatic of deals done during the height of the LBO market, when prices were rich and debt was plentiful.

In related news, a group of senior lenders to Freescale have sued the company for its action to exchange $4 billion in notes for a roughly $1 billion term loan, essentially diluting collateral of the original senior loan to the benefit of a new loan with the same terms. The senior lenders in the suit say this swap attempt “unjustly enriched” noteholders at the expense of original senior lenders.

This debt arrangement, agreed to in 2006, is referred to as an “accordion” facility because of its flexibility, said a source close to sponsors’ consortium. The source said the GP-friendly terms of this facility gave confidence to the private equity firms that they would remain in control of Freescale despite its weakened financial state. Such favourable terms were common in a market where lenders were eager to do business with large private equity firms.

The acquisition of the company, once a division of Motorola, remains among the largest private equity deals of all time, and is being closely watched as a harbinger of potential trouble in other highly leveraged deals of the same vintage year.