ARM potentially liable for $8.5 million SoftBank debt

As a guarantor, chip designer will be liable for the SoftBank debt if it fails to file for IPO by end of this September.

British chip designer Arm, appears to be liable for an $8.5 billion loan which was made to its owner SoftBank, in the event that the company delays its initial public offering (IPO) beyond September.

The company has endured a turbulent year. Loss making Japense parent company SoftBank had planned to sell Arm to Nvidia but that deal collapsed in February 2022 due to regulatory issues. Following the sale being called off, SoftBank announced that the company would float within the fiscal year ending on March 31st 2023, but this was delayed, with worsening economic and market conditions being cited. As one of the jewels in the UK tech crown, considerable political efforts have been expended on persuading Arm executives to list on the UK stock exchange.

Speculation has been rife this month that the IPO might not happen for some time yet - or at all.

However, Arm's accounts for the last financial year were filed last week, and an eagle-eyed reporter spotted that another subsidiary of 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. The loan facility was expanded to $8.5 billion last June.

The sting in the tail of the arrangement is something called a springing guarantee. This names Arm as the guarantor of the loan, and becomes effective on a triggering event. One of the events named is an IPO not occurring within 18 months of March 31st 2022 and on trigger, "future events of default fall to the company."

This puts Arm squarely in the frame for SoftBank's debt if it hasn't filed for IPO by the end of September - favourable market conditions or not.

Despite its troubles, Arm announced in February revenues of $746 million for the third quarter of its financial 2022 to the end of December, an increase of 28% on the same period in 2021 and an increase of more than $90 million on the previous quarter.

Nonetheless, in March, it was reported that Arm was revising its price model, particularly on the Cortex-A designs commonly used in smartphone processors. This revision was reportedly being driven by SoftBank with a view to beefing up profit margins ahead of IPO.

The potential liability of Arm for such a large debt would strike another blow to the UK semiconductor industry, already unsupported to the extent that its importance to the wider UK economy and critical infrastructure suggest it should be.