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Arm liable for $8.5B SoftBank loan if IPO is a no-show

Chip designer has until September to float or it's on the hook for parent company's borrowing

Brit chip designer Arm could be on the hook for an $8.5 billion loan made to its parent SoftBank if the company's initial public offering (IPO) is delayed or canceled.

Arm was planned to be floated on the stock market within the fiscal year that ended March 31 2023, but due to various complications this has been delayed and is now expected to happen sometime later this year.

However according to the chip designer's most recent accounts, filed with Companies House in London last week, there is an $8.5 billion loan hanging over the company for which it will be liable if it has not filed for its IPO by the end of September, as first spotted by David Manners of Electronics Weekly.

The accounts reveal that another subsidiary of Arm parent SoftBank entered into an agreement with financial intuitions in March 2022 to borrow $8 billion, providing 75.01 percent of Arm's shares as collateral.

Initially, the loan comprised $7.9 billion, plus $0.9 billion as a bridge facility loan. The $7.9 billion was to be repaid in full on maturity, which was to be either three months after the effective date of Arm's public listing or 24 months after the commencement of the loan, whichever was earlier.

On June 24 last year, an amendment letter expanded the loan facility amount to $8.5 billion by an additional $1.4 billion in borrowing, $0.9 billion of which was used to repay the bridge facility, while the remaining $0.5 billion was added to the debt.

The loan specifies a springing guarantee, which is a guarantee that only becomes effective upon certain conditions being met. The accounts state:

"A springing guarantee, naming Arm as the guantor, becomes effective on the triggering event of material breach or misrepresentation, an IPO not occuring within 18 monthgs of 31 March 2022 or such intention being announced. On trigger, future events of default fall to the company."

What this indicates is that Arm will be responsible for SoftBank's debt if the chip designer has not at least filed for its public offering by the end of September, or (heaven forbid) the entire process is canceled for some reason.

We asked Arm for comment but the company declined, claiming that it is in a legally mandated quiet period.

SoftBank had originally proposed to value Arm at $60 billion for the purposes of the IPO, a similar figure to the amount it hoped to rake in from the abortive sale of the company to Nvidia last year. However, various investors have more recently valued the company at anything between $30 billion and $70 billion.

In February, Arm reported total revenue of $746 million for the third quarter of its financial 2022 to the end of December, a figure up 28 percent over the same period a year earlier and also an increase on the $655.85 million it took in the previous quarter.

Last month, The Register reported on persistent rumors in the industry that Arm is planning to change the way it licences its designs so it can charge device makers a royalty for every chip they use, based on the total price tag of the hardware, and increase profits. Arm likewise declined to confirm or deny this. ®

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