Microchip steadies after $1.35 bln convertible stock sale priced

Microchip Technology's MCHP.O shares trading around the flat line on very light premarket volume after co secured capital raise to trim debt

Chandler, Arizona chipmaker early Fri announced pricing offering of $1.35 bln mandatory convertible preferred stock at $50/depositary share

Preferred stock has annualized dividend yield of 7.5%

Unless earlier converted by investors, preferred stock will automatically convert on Mar 15, 2028 into between 0.8003 and 0.9804 of MCHP shares, or up to 22.5% premium

Co to use ~$50 mln of net proceeds to pay for capped calls, derivative transactions used to mitigate share dilution, balance primarily to repay commercial paper

MCHP's shares on Thurs fell 6.5% to close at $51. That equates to ~3.6% annualized dividend yield and ~$27.4 bln market cap, per LSEG

Before the bell on Thurs, Moody's downgraded MCHP's senior unsecured rating to Baa2 from Baa1 to reflect a "weak financial profile resulting from a sharp erosion in earnings"

The rating agency said the convertible refinancing will reduce MCHP's debt leverage by more than 1x to about 5x. It also said overhang from $1.2 bln of notes maturing in Sept 2025 will continue to pressure liquidity

Earlier this month, co sald it would cut around 2,000 jobs, or about 9% of its workforce, as it grapples with waning demand from automakers

Through Thurs close, MCHP's shares off 11% YTD compared to 7.6% decline in Philadelphia Semiconductor Index .SOX and 10% drop in S&P 500 Tech sector .SPLRCT

JP Morgan, BofA and BNP Paribas are lead joint bookrunners for the convertible offering