Dell Said to Offer Premium to Lure Buyers to EMC Bond Deal

Dell Inc. is paying up to sell more than $16 billion of secured bonds that will finance its $67 billion acquisition of EMC Corp. in what’s likely to be the week’s premier debt offering.

While the computer maker’s proposed notes have been given the lowest investment-grade, the yields offered may entice investors who typically buy higher-rated junk bonds, said Matthew Duch, a money manager at Calvert Investments in Bethesda, Maryland, which has about $12 billion of assets under management

The longest part of the offering, debt maturing in 30 years, is being marketed at a yield of 6.25 percentage points above similar-maturity Treasuries, said a person familiar with the matter, who asked not to be identified because the information is private. That’s three times more than the average spread on all U.S. corporate bonds of similar ratings and maturities, according to Bank of America Merrill Lynch data.

A proposed 10-year note may yield 4.75 percentage points above government debt, said the person. That’s a premium of almost 2 percentage points over comparable debt.

High-Yield Interest

“You can capture some high-yield interest at these levels,” Duch said. “There’s no doubt that it becomes more attractive.”

Dell’s bond sale may be the largest since Anheuser-Busch InBev NV sold $46 billion of bonds in January to finance its takeover of SABMiller Plc.

Creditsights Inc. analysts led by Erin Lyons rated the offering the equivalent of a buy in a note on Monday, saying the bonds offer “compelling value” compared to the debt of peers including HP Inc. and Hewlett Packard Enterprise Co.

“We think investors will be willing to overlook the credit concerns given the attractive yield, secured nature of the bonds, and coupon steps,” they wrote. “We sense investors have made room in their portfolios, expecting meaningful concessions.”

Moody’s Investors Service assigned a Baa3 rating to the bonds last week. S&P Global Ratings graded the debt an equivalent BBB-. Dell also plans to sell $3.25 billion of unsecured notes in the high-yield market, according to S&P.

The deal is expected to price this week. Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are managing the sale.

Investors have been on the lookout for a host of debt offerings from Dell since the company said in October that banks had committed $49.5 billion of financing for the takeover. In April, the computer maker was close to placing a senior portion of the debt financing -- $11 billion of term loans that were up-sized by $1 billion -- through a syndicate of 24 banks, a person with knowledge of the matter said at the time.

Representatives for Dell didn’t immediately return a phone call seeking comment.

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