Dell Sets Price Talk on EMC Deal Bonds

Dell Inc. took a major step toward selling at least $16 billion of secured bonds backing its acquisition of EMC Corp. Monday, opening the process on Wall Street of setting yields on various debt maturities.

Dell is offering investors a high interest rate by the standards of investment-grade bonds, with the yield on a 10-year bond guided at around 4.75 percentage points above Treasurys, or roughly 6.5%, people familiar with the matter said. The issuance could span as many as six fixed-rate tranches of maturities ranging from three years to 30 years, as well as three-year and five-year floating-rate bonds.

Investors have demanded a hefty yield for several reasons, including the large debt load that the computer maker is assuming and its uncertain long-term prospects as it tries to adapt to a changing tech landscape.

Monday's "price talk" moves the company closer to completing the largest bond offering since Anheuser-Busch InBev NV's $46 billion offering in January.

Still, the cost of debt financing for corporations has dropped considerably in recent months as recession fears have waned and the Federal Reserve has assured investors that it is in no hurry to raise interest rates.

At a time of ultralow interest rates but a still fragile global economy, investment-grade bonds are especially popular now because they offer higher yields than government bonds without the risk of junk-rated bonds or stocks.

Investors poured $2.1 billion into investment-grade mutual funds and exchange-traded funds in the week ended May 11, bringing the year-to-date inflow to $36.1 billion, compared with $10.5 billion for high yield funds and an outflow of $47.4 billion for equity funds, according to Bank of America Merrill Lynch analysts.

As a result, Dell has tried to maximize the amount of its investment grade bond issuance while minimizing other types of debt, including certain loans and junk-rated unsecured bonds.

With the help of an asset sale and cash generated since it announced its acquisition of EMC in October, Dell has managed to reduce the expected size of its unsecured bonds to $3.25 billion from $9 billion. Although it had planned to syndicate $8 billion of "institutional" loans to nonbank investors, that number could also come down if the company can issue more than $16 billion of secured bonds, investors said. Both the unsecured bonds and loans will likely be syndicated in the coming weeks, investors said.

Dell's unsecured bonds are rated sub-investment grade because they sit lower in Dell's capital structure than the company's loans and secured bonds, giving them a lower chance at a full recovery in any potential bankruptcy.

Dell, which itself is rated just below investment grade by all three major ratings firms, got a boost last week when Moody's Investors Service rated its secured bonds Baa 3, its lowest investment grade rating and a notch higher than what some analysts had expected. That ensured that all three rating firms rated the bonds investment grade, making them more appealing to investors unaccustomed to buying bonds from riskier companies.

Dell expects to close its acquisition of EMC by the end of October, pending approval from Chinese regulators and a vote by EMC shareholders that is expected to take place by July.

The secured bond deal is underwritten by Credit Suisse Group AG, J.P. Morgan Chase & Co., Bank of America Corp., Barclays PLC, Citigroup Inc., Goldman Sachs Group Inc., Deutsche Bank AG and RBC Capital Markets.

Write to Sam Goldfarb at [e-mail]

(END) Dow Jones Newswires

May 16, 2016 13:25 ET (17:25 GMT)

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