Credit Woes Whack Tech M&A

Credit market turmoil has widened the spread between the yields on Treasury bonds and some corporate debt by roughly two percentage points, according to data from UBS.

This difference in yields can be especially painful for companies like the semiconductor maker Rambus (RMBS Quote) that may be in technical default on debt because they haven't filed financial statements with the Securities and Exchange Commission on time.

Bond holders have called on Rambus to repay $160 million in bonds ahead of schedule. They argue that Rambus triggered early repayment clauses by delaying quarterly filings because of an ongoing probe into how stock option grants were dated.

Likewise, ACS is locked in a legal standoff with creditors seeking early repayment on bonds because of the company's failure to file its 2006 annual report.

Other late filers include computer maker Dell (DELL Quote), software maker BEA Systems (BEAS Quote) and the IT-services giant Computer Sciences (CSC Quote).

Provided that credit market conditions don't deteriorate further, Stimpson doesn't foresee the tech sector imploding like the financial services, real estate and homebuilding industries have.

Call for early repayment of bonds should be limited to a subset of tech companies that have taken advantage of cheap credit and found themselves embroiled in the options backdating scandal.

"Many tech firms have been at peak profitability for several years and have high cash balances," which makes them better credit risks and keeps a lid on the interest they pay, says Stimpson.