Tower Semiconductor closes on bank debt restructuring

By Caroline Salls

Pittsburgh, Sept. 25 - Tower Semiconductor Ltd. said it has signed and closed definitive restructuring agreements with its lender banks and Israel Corp., which are based on a memorandum of understanding reached on Aug. 20, according to a company news release.

"This period of time is very exciting for Tower Semiconductor," Tower chief executive officer Russell Ellwanger said in the release. "More doors of opportunity are open to us now than any other time in our history."

Under the agreements, $250 million of Tower's debt to Bank Leumi, Bank Hapoalim and Israel Corp., will be forgiven in exchange for equity capital notes of the company, exercisable into ordinary shares at $1.42 per share.

Tower said this price per share represents two times the average closing price of Tower's stock on Nasdaq for the 10 trading days before Aug. 7.

The company said the conversion of the debt into equity capital notes reduces its debt by about $250 million, increases its shareholders' equity on its balance sheet by $250 million and improves its cash flow margins, statement of operations results and financial position.

In addition, Tower said the agreement will result in a roughly $130 million one-time gain that will be recorded in the third quarter of 2008.

In addition, Israel Corp. has agreed to invest $20 million in Tower and has committed to invest up to an additional $20 million.

"We appreciate the Israel Corporation's investment, in providing us with the capital to fund our continued growth, as well as the ongoing partnership with our banks that resulted in the successful restructuring of our debt, also enabling further growth," Ellwanger said in the release.

"This new capital and our strengthened balance sheet combined with last Friday's close of the merger with Jazz Semiconductor accelerates Tower's trajectory towards realizing our goal of becoming the number one specialty foundry in the world."

The agreements also:

• Postpone the payment of the remaining principal on the loans until September 2010;

• Add interest payments originally due in September 2008 through June 2009 to the principal payments, which are scheduled to be paid in eight equal quarterly installments beginning in September 2010 and ending in June 2012;

• Set the interest rate on the remaining bank debt at Libor plus 250 basis points; and

•Waive in full the company's compliance with financial covenants through the end of 2008 and revise the covenants beginning in 2009 to reflect Tower's updated forecasts.

Tower Semiconductor is a Migdal Haemek, Israel-based independent specialty foundry that delivers customized services in a variety of advanced CMOS technologies.

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