Dell announces US$3.25b junk bond for EMC purchase

[NEW YORK] Computer giant Dell on Monday announced a US$3.25 billon junk bond, the riskiest and lowest-rated part of a financing package to fund its US$67 billion purchase of data storage company EMC.

JP Morgan and Credit Suisse are leading the junk-bond offering, which follows a US$20 billion six-part investment-grade bond in mid-May and a US$5 billion Term Loan B that priced last week.

The two-part senior notes deal will be split between five-year non-call two and eight-year non-call three tranches, and is expected to be rated Ba2/BB/BB+.

Whispers are high 6 per cent area and high 7 per cent to 8 per cent area respectively, one banker on the deal told IFR. That is roughly in line with where some investors had envisaged pricing last week.

One pricing benchmark for the Dell trade is Charter Communications. The cable provider used a similar combination of investment-grade and high-yield notes last year to finance its takeover of Time Warner Cable.

Charter's high-yield notes trade about 150bp wide to the company's investment-grade notes, with yields of 5.4 per cent and 3.9 per cent respectively for tenors of around 10 years, according to Thomson Reuters data.

One investor said a more challenging backdrop for the computer sector would mean Dell will have to offer a spread as much as 200bp over its high-grade notes.

That suggested a new 10-year junk bond for Dell would come at a yield close to 8 per cent, given that its high-grade 2026 bond was quoted on Monday at around 5.9 per cent.

"There is no way this is like a Charter," said the investor."Yield is going to be the magic question."

Bank of America Merrill Lynch, Barclays, Citigroup, Goldman Sachs, Deutsche Bank and RBC are joint bookrunners on the trade, which is expected to price on Thursday. Marketing begins Monday.

IFR