Dell Preps for Debt Market Foray -- WSJ

PC maker plans to sell $16 billion in high-grade bonds as part of the package for EMC deal

By Sam Goldfarb 

A red-hot market for higher-quality corporate debt is enticing Dell Inc. to begin marketing the investment-grade-bond portion of its debt package backing its acquisition of EMC Corp., a person familiar with the matter said.

The Round Rock, Texas, personal-computer maker plans to start the sales process for about $16 billion of secured bonds this week, in an important step for the $60 billion deal.

The company also is expected to sell billions of dollars more of secured loans and unsecured bonds, although the final mix, size and timing of debt sales could change with investor appetite and how much the company raises from asset sales.

The secured-bond plans underscore the surging demand for highly rated debt, as companies take advantage of ultralow interest rates. On Monday, investment-grade bond issuance reached $25 billion, the second-largest daily sum this year and the fourth largest since 2006, according to Bank of America Merrill Lynch Global Research.

A $16 billion bond deal on its own would be among the largest this year, ahead of a $12 billion issuance in February from Apple Inc. though behind a $46 billion deal from Anheuser-Busch InBev NV, which sold the bonds in January to help pay for its acquisition of SABMiller PLC.

Announced in October, Dell's acquisition of EMC is expected to be completed by the fall, pending a vote by EMC shareholders that is expected to take place next month.

Because banks have already committed to funding its acquisition, Dell technically doesn't have to get investors to buy any of its debt. But banks are loath to hold so much debt on their books, and Dell almost certainly can get better terms from investors than what the banks have promised the company.

Dell's plans to market its secured bonds were reported last week by Bloomberg News.

Given the state of the investment-grade market, selling secured bonds now makes some sense for Dell. A successful syndication -- in which a group of lenders provides the funds to a borrower -- could create momentum for other parts of its debt package that have been expected to be greeted more warily by investors.

A similar scenario played out last July when Charter Communications Inc. issued $15.5 billion of investment-grade secured bonds to help fund its acquisition of Time Warner Cable Inc., clearing the way for it to subsequently issue several billion dollars more of loans and junk-rated unsecured bonds.

Dell, a private company since its buyout in 2013, isn't a typical issuer of investment-grade bonds. Its unsecured debt is expected to receive junk ratings, while its secured bonds and loans receive investment-grade ratings because they sit higher in the company's capital structure, giving them a greater chance at a full recovery in any potential bankruptcy.

Despite its brand name and large market share, Dell faces challenges adjusting to a new technology landscape, as spending shifts from personal computers to mobile devices and from corporate data centers to off-premise cloud services.

Acquiring EMC, a leading data-storage company, is aimed at giving it a broader platform on which to build, but wouldn't remove its reliance on products that many analysts believe are facing a long-term decline.

Preparing for the possibility of a difficult syndication, banks have set the maximum interest rate for Dell's junk bonds at about 12%, according to people familiar with the matter, meaning the banks won't have to hold on to the debt as long as investors accept a yield below that threshold.

One factor in Dell's favor is the long time that investors have had to prepare for, and even save up for, its debt offering. On Monday, investors jumped at the opportunity to buy long-awaited bonds from AbbVie Inc., but gave a somewhat less enthusiastic response to Chevron Corp., whose presence in the market was less telegraphed, investors said.

"For those issuers where there is a reasonable amount of lead time, you're seeing very strong interest," said Jon Duensing, deputy chief investment officer and senior portfolio manager at Amundi Smith Breeden, part of European asset manager Amundi SA, which oversees more than $1 trillion.

Both junk-rated and investment-grade corporate bonds have rallied 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.

The average yield for corporate bonds in a Barclays PLC investment-grade index was 3.06% Monday, down from 3.6% in early February. Yields fall as bond prices rise.

Write to Sam Goldfarb at [e-mail]

(END) Dow Jones Newswires

May 11, 2016 02:47 ET (06:47 GMT)

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