| Item 1.01 | Entry into a Material Definitive Agreement. |
On March 26, 2024, Magnachip Semiconductor, Ltd., a Korean limited liability company (“MSK”) and indirect wholly-owned subsidiary of Magnachip Semiconductor Corporation (the “Company”), executed a Standard Credit Agreement (together with its General Terms and Conditions, the “Loan Agreement”) with Korea Development Bank (“KDB”). In connection with the Loan Agreement, on March 26, 2024, MSK entered into a Kun-Pledge Agreement (the “Pledge Agreement”) with KDB with respect to the pledge by MSK in favor of KDB of MSK’s real property and buildings owned by MSK in respect of its fabrication facility located in Gumi, Korea (“Fab 3 properties”).
The Loan Agreement provides for a working capital term loan (the “Term Loan”) of KRW 40,000,000,000 (approximately $28.9 million based on the KRW/USD exchange rate of KRW 1,340.7:$1 as of March 26, 2024 as quoted by KEB Hana Bank), which was funded in full to MSK on March 26, 2024.
The Loan Agreement allows MSK to access the local Korean financing market where interest rates remain relatively favorable compared to other jurisdictions. This opportunistic financing also adds additional funding to solidify the Company’s balance sheet and allows the Company to address future working capital needs well in advance at an attractive cost of capital. The Company expects the additional source of capital will assist in exploring and executing on strategic options to enhance shareholder value.
The Term Loan bears interest at a variable rate equal to the 3-month CD rate quoted by KDB, plus 1.21%, which rate is adjusted quarterly. The initial interest rate on the Term Loan was 4.86% per annum. The Term Loan requires monthly interest-only payments and matures on March 26, 2027 (the “Maturity Date”), at which time the full principal balance will be due and payable. The Loan Agreement contains customary representations of MSK in connection with the initial borrowing of the Term Loan and customary terms and conditions for a secured working capital loan of this type in Korea. All obligations of MSK under the Loan Agreement and Term Loan are secured by the Fab 3 properties pursuant to the Pledge Agreement.
The Term Loan is prepayable prior to the Maturity Date only with a prepayment penalty above the principal amount determined by a formula equal to the number of days remaining to the Maturity Date on the prepayment date multiplied by 1.2%, divided by the number of days in the full three-year term.
The Loan Agreement and Pledge Agreement are governed by Korean law and documented in the Korean language. The foregoing description of the Loan Agreement and Pledge Agreement is qualified in its entirety by reference to the full text of the Loan Agreement and Pledge Agreement, which the Company expects to file with the applicable English language summary or translation, in its Quarterly Report on Form 10-Q for the three months ended March 31, 2024.
| Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information included in Item 1.01 of this Form 8-K is hereby incorporated by reference into this Item 2.03.
