Like many of you, I nearly fell off my chair when I read the 20% interest rate for TXN's loan. Too bad TXN mgt couldn't pay for the drilling on their credit cards! It might have been 1-2% cheaper along with 55 days interest free!
Here is SEA's loan arrangement with the Bank of OK (from FY12 annual Report, October 2012, pg. 62): "Interest on borrowed funds accrues, at the Company’s option, of i) LIBOR plus a margin that ranges from 225 to 300 basis points or ii) the Base Rate, defined as a rate equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the Prime Rate, or (c) LIBOR plus a margin that ranges from 100 to 175 basis points. The applicable margin varies depending on the amount drawn. The Company also pays a commitment fee of 50 basis points on the undrawn balance of the borrowing base."
Yes, SEA's arrangement is long term vs TXN's short-term, but TXN's interest rate really is exorbitant. Evidence that TXN is/was in a tight spot.
SEA likely has enough cash (beyond the $140M it needs to reinvest) to cover TXN's expenses. Maybe the Bank of OK would fret if SEA lent out most of its spare cash. Or maybe SEA wants to keep things separate just in case another suitor comes along. The good news is that TXN's loan is likely very short term (3-5 months, I assume).
TXN Price at posting:
39.0¢ Sentiment: None Disclosure: Held
