By Hillary Flynn and Mike Gambale
NEW YORK (IFR) - Dell launched a US$20bn investment-grade bond on Tuesday, upsizing the trade on the back of a massive order book as it finances its acquisition of data storage company EMC (NYSE:EMC).
Investors had poured around US$87bn of orders into the deal by late morning, one banker said, giving a hearty reception to one of the largest corporate bonds ever brought to market.
The strong book allowed the computer giant to ratchet in pricing dramatically throughout the bookbuilding process and launch the trade at much tighter levels than first whispered.
"It's not surprising Dell ripped tighter from initial price thoughts to launch," one syndicate banker away from the deal told IFR. "They started pretty cheap, even for a low Triple B."
Dell's five and 10-year tranches - at US$4.5bn each, the biggest chunks of the six-part trade - launched at T+312.5bp and T+425bp, respectively.
That looked to be offering a new issue concession of 25bp-30bp on the two tranches, or up to a whopping 62.5bp tighter than levels at the IPT stage.
It also launched a US$3.75bn three-year at T+250bp, a US$3.75bn seven-year at T+387.5bp, a US$1.5bn 20-year at T+550bp and a US$2bn 30-year at T+575bp.
FINANCING PACKAGE
The six-part secured trade was originally expected to be only US$16bn, alongside a US$3.25bn junk bond and a roughly US$8bn term loan B as part of the acquisition financing package.
But with the deal upsized to US$20bn - the fourth-largest US dollar corporate bond of all time - it was not immediately known how the rest of the package would take shape.
Although Dell is junk-rated, the company put together an investment-grade deal, expected to be rated Baa3/BBB-/BBB- which includes 25bp step-ups per agency downgrade up to a maximum of 200bp.
The newly merged entity is expected to have more than US$50bn of debt, and amid worries about both the storage and personal computer sectors, some investors were cautious.
"We are concerned about the long-term decline of the storage and server business in particular," said Bill Zox, a portfolio manager at Diamond Hill Capital Management.
GOOD TIMING
For a comparable, bankers looked at the outstanding October 2025 bond that priced last year from Hewlett Packard Enterprise.
But that spin-off from the old Hewlett-Packard computer company was not seen as a perfect comp, and some in the market advised against reading too much into Dell's pricing levels.
"I'm not sure there is too much to read from the pricing," a second banker said. "It was priced to sell and had to get done."
But the active bookrunners - Bank of America Merrill Lynch (NYSE:BAC), Barclays (LON:BARC), Citigroup (NYSE:C), Credit Suisse (SIX:CSGN), Goldman Sachs (NYSE:GS) and JP Morgan - certainly seemed to do well with the timing of the offering.
For a trade that has been anticipated by the market for months - Dell announced the takeover back in October 2015 - the leads waited until the primary market had rebounded nicely after a rocky first quarter.
As of Monday, the average spread on Triple B rated bonds had rallied 92bp from a multi-year wide of T+303bp on February 11.
"The investment-grade market is healthy after a difficult first quarter," the second banker said. "I would assume banks would move quickly to build off this strong momentum."