Carlyle / Unison-owned Covalent Avoids Default By Loan Extensions And Buy-backs

Covalent Materials, backed by Carlyle and Unison, has avoided a default on its JPY 53.3 billion (USD 680 million) outstanding debt due February 2014 after agreeing to buy back up to JPY 21 billion at a 24% discount and paying the rest with up to 4 year maturity extensions. The interest rate was increased from 2.87% pa to 4.25%  pa and the redemption amounts will increase by JPY 1.25 over JPY 100 loan notional every 6 months. The original proposal put together by Covalent was to extend the maturity by 4-6 years on the 60 % of the outstanding loan balance without a rate increase nor buy-backs. Blackstone Advisory Partners advised the bondholder group.

Covalent, ex-Toshiba Ceramics, was bought by Carlyle and Unison in 2006. Carlyle held a 47.2 per cent stake in Covalent and Unison a 47.5 per cent stake at the end of March 2012.

The business has recently struggled to maintain profitability as the price of chips has fallen. Covalent sold its silicon wafer business to a Taiwanese company in March 2012, causing a one-time loss of JPY 31 billion (USD 400 million), in order to focus on ceramics business (materials and parts for manufacturing semiconductors). The wafer business and the ceramics business respectively occupied a half of Covalent's JPY 68 billion (USD 870 million) revenue in 2012.