Lehman lifeline was critical to chip maker AMD
By JORDAN ROBERTSON (AP Technology Writer)
From Associated Press
September 19, 2008 1:58 PM EDT
SAN FRANCISCO - With Advanced Micro Devices Inc.'s cash reserves dwindling and the chip maker's overall financial health deteriorating to dangerous levels last year, the company was thrown a lifeline by Lehman Brothers, the investment bank now in bankruptcy.
The $1.5 billion in AMD debt that Lehman scooped up in August 2007 demonstrates the important role that banks like Lehman and other investment firms play in helping prop up wobbly companies by pouring money into them when they're down.
The banks profit from the investment in so-called "convertible senior notes" through interest payments and the conversion of the debt into either cash or favorably priced shares delivered at some point in the future. Healthy companies also use the debt offerings to raise money on favorable terms to buy back stock or pay for other general expenses.
The Lehman-AMD deal is a snapshot of a common type of partnership that could be harder to come by with Lehman's bankruptcy and the disintegration or consolidation of other banks.
In AMD's case, Lehman's problems won't affect the Sunnyvale, Calif.-based company's balance sheet, which at the end of June showed AMD holding about $1.6 billion in cash while carrying $5.3 billion in debt.
That's because AMD has already spent the proceeds, and its debt offering was sold off by Lehman to other banks or held by its subsidiaries that are now being sold to other firms.
There were no clauses that required anything further of AMD other than paying interest on the investment and fulfilling the contracts when they reach their maturity date.
AMD declined to comment.
AMD used the cash infusion to pay down debt from its $5.6 billion acquisition of graphics chip maker ATI Technologies and for other corporate expenses.
Richard Lane, a fixed-income analyst with Moody's Investors Services who follows the high-tech sector, said that in today's environment, any company considering issuing long-term debt - even a company with solid fundamentals - could face challenges raising money.
Companies like AMD could also be at a disadvantage in selling short-term debt, also called short-term commercial paper. The strongest, most well-established technology names figure to be in the best position, as a crisis of confidence in the markets tends to drive a "flight to quality" by investors seeking the most stable companies, Lane said.
That includes two titans of the tech sector, International Business Machines Corp. and Hewlett-Packard Co., which use commercial paper to fund their operations and cover the cost of customer financing. IBM could have anywhere from $5 billion to $10 billion in commercial paper outstanding at any time, while HP generally has as much as $6 billion outstanding, according to Lane. Hewlett-Packard declined to comment, and IBM did not return a request for comment.
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And a song, circulated to my MBA class, which popularizes the events that will soon go down in history. It's one thing when you are reading about these things in the History books, it's another when it is happening right in front of you. These are exciting times. And I wouldn't look at these times as failures. I would look at them as opportunities to change (and I'm not subconsciously pulling an Obama here). There is something just a little refreshing about being given the chance to make yourself over, and rediscover who you really are.
In memoriam: The ballad of the Lehman Bros. banker, sung to the tune of Don McLean¹s American Pie:
A long, long time ago,
I can still remember,
How much wealth there was in the Square Mile,
And I knew that if I had my chance,
I could make it in finance,
And maybe I¹d have money for a while.
But subprime assets made me shiver,
With every product I¹d deliver,
Bad news in the press(es),
Just look at those CDSs.
I can¹t remember if I cried,
When my salary was pushed aside,
But something resounded worldwide,
The week the IB died.
So bye, bye, Lehman Brothers and I,
Needed credit to get better but the credit was dry,
Hank Paulson¹s Fed had carved up the pie,
Saying, AIG¹s too big to die,
AIG is too big to die.
Why¹d Fuld wait, put all at stake,
Did he think he¹d make more at a later date?
Greedy finance tycoons,
Now Barclay¹s buying, let¹s be frank,
A pretty cheap investment bank,
Can you hire me, real soon?
Well, I know that it¹s a lot to ask,
When Einhorn¹s taken us to task,
Using our balance sheet to guise,
Our level 3 assets¹ demise.
Now Morgan Stanley¹s feeling short,
And BofA¹s Merrill¹s last resort,
The banking system¹s pretty morte,
The week the IB died.
I was saying,
Bye, bye, Lehman Brothers and I,
Needed credit to get better but the credit was dry,
Hank Paulson¹s Fed had carved up the pie,
Saying, AIG¹s too big to die,
AIG is too big to die.
Now for four years we¹d been on the phone,
Selling mezzanine CDOs,
But that¹s not how it used to be,
When Dick came in, we just did bonds,
Good thing he helped us right that wrong,
By buying Aurora Loan LLC,
Oh, and while the Fed was looking Oround,
They thought they¹d try and shoot us down,
The market was all broken,
Bank lending was a croakin¹,
And while we unwind our trading book,
The head hunters all have a look,
The hedge funds are put on the hook,
The week the IB died,
I was saying,
Bye, bye, Lehman Brothers and I,
Needed credit to get better but the credit was dry,
Hank Paulson¹s Fed had carved up the pie,
Saying, AIG¹s too big to die,
AIG is too big to die
1 comentario:
Very good article !
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