HG bonds: SK Hynix places $2.5B offering post acquisition; terms

South Korea-based semiconductor company SK hynix Inc. today completed a $2.5 billion, three-part offering, in line with guidance levels.

Proceeds will be used for general corporate purposes, including the repayment of outstanding borrowings and capital expenditures, according to the rating agencies. Proceeds from the 2031 tranche will be used for eligible green projects.

Of note, in October 2020, SK Hynix announced that it would purchase Intel Corp.’s NAND memory chip business in a $9 billion transaction that will take place in two stages through 2025. Hynix will pay Intel $7 billion by the end of 2021, and the remaining $2 billion by March 2025.

S&P Global Ratings, which sees the purchase as “modestly credit positive, noted last October that the acquisition will be financed through Hynix’s own cash reserves and external borrowings, and it would not assume any of the target’s debt in the transaction.

Last week, Ratings and Moody’s assigned respective BBB–/Baa2 ratings to the new offering.

Ratings maintains a stable outlook on its BBB– rating. “We expect SK Hynix's operating performance to materially recover in 2020 and 2021, compared with 2019, mainly owing to favorable demand for memory semiconductor amid the COVID-19 pandemic. We estimate the company's EBITDA will rise 25%-30% in 2020 and increase further in 2021 as demand remains favorable,” the agency said on Jan. 6.

Ratings also noted that the new acquisition could substantially strengthen SK Hynix's position in the NAND market, where the company's presence is much weaker than in the DRAM [dynamic random-access memory] business. “However, we see some uncertainties over the post-merger integration process and profitability management given that SK Hynix has been incurring losses in the NAND segment due to intensifying competition. The acquisition will also increase the company's leverage, narrowing its financial headroom,” analysts said on Jan. 6.

Meanwhile, Moody’s maintains a negative outlook on its Baa2 rating. It expects conditions in the global memory chip industry to continue to improve in 2021. “That said, uncertainties remain over this expected industry recovery and the size of SK Hynix's free cash flow. Weaker-than-expected cash flow and higher acquisition debt would lead to a steeper deterioration in SK Hynix's debt leverage than Moody's currently expects. These uncertainties drive the company's current negative outlook,” Moody’s said on Jan. 6. Terms: