Business Context and Reporting Period
Company: Advanced Micro Devices, Inc. (AMD)
Filing Type: Form 8-K (Current Report)
Date of Report: October 13, 2006
Event: Entry into a Material Definitive Agreement and creation of a direct financial obligation.
On October 13, 2006, AMD and its subsidiaries executed an Amendment Agreement regarding a EUR 700 million Term Loan Facility. Concurrently, the subsidiary AMD Fab 36 KG borrowed $645 million under this facility.
Key Financial Metrics and Obligations
- New Debt Obligation: $645 million term loan borrowed by AMD Fab 36 KG.
- Interest Rate: 7.1259% for the initial three-month interest period.
- First Interest Payment: Approximately $12 million due on January 16, 2007.
- Repayment Schedule: Principal repayments begin September 30, 2007, and conclude March 31, 2011, with percentages ranging from 3% to 10% per period.
- Currency Option: Borrowing in U.S. Dollars is permitted if group consolidated cash is at least $500 million.
- Cash Reserves: If consolidated cash falls below $1 billion or credit ratings drop below B3 (Moody's)/B- (S&P), a cash reserve equal to 5% of outstanding USD loans is required.
Material Changes and Covenant Amendments
The filing details significant amendments to the Facility Agreement and Guarantee Agreement:
- Covenant Simplification: If group consolidated cash is at least $1 billion and credit ratings remain above B3/B-, the subsidiary is no longer required to maintain minimum cash balances. The only remaining financial covenant is the loan-to-fixed-asset value ratio (capped at 50% through 2008, 45% in 2009, and 40% thereafter).
- Adjusted Tangible Net Worth: The definition of "adjusted net earnings from operations" was amended to exclude equity compensation expenses and equity in net income/loss of Spansion Inc. Minimum net worth requirements are set at $1.75 billion for fiscal quarters ending March 2006 and thereafter.
- EBITDA Requirements: Minimum EBITDA levels were reduced to $850 million for four consecutive fiscal quarters and $750 million on an annualized basis for the two most recent quarters prior to December 31, 2006.
- Compliance Status: As of July 2, 2006, group consolidated cash exceeded $500 million, and the subsidiary was in compliance with the loan-to-fixed-asset covenant.
Outlook, Risks, and Contingencies
Management Commentary: The amendments were designed to simplify information undertakings and adjust financial covenants to reflect the company's current financial structure, specifically regarding the Spansion LLC subsidiary.
Risks and Contingencies:
- Currency Risk: Lenders are protected via cash reserve accounts if consolidated cash drops below $1 billion or credit ratings decline.
- Credit Rating Triggers: Specific financial covenants (net worth and EBITDA) are contingent on maintaining specific credit ratings (Moody's and S&P) and consolidated cash levels.
- Joint Ventures: The lenders (Dresdner Bank AG and affiliates) also hold facilities for AMD's joint ventures, AMTC and BAC, in which AMD owns a one-third equity interest.
Investor Verification Checklist
- Verify current group consolidated cash levels to determine if the $500 million threshold for USD borrowing or the $1 billion threshold for covenant relief is met.
- Confirm current credit ratings from Moody's and Standard & Poor's to assess applicable EBITDA and net worth covenant levels.
- Review the full text of Exhibit 10.1 (Amendment Agreement) for detailed definitions of "adjusted tangible net worth" and "fixed asset value."
- Monitor the repayment schedule starting September 2007 to ensure liquidity planning aligns with the 100% principal repayment by March 2011.
- Check for any subsequent filings regarding the status of the Spansion Inc. equity interest, as this impacts the net earnings calculation.