Dell Sells $20 Billion of Bonds in Year’s Second-Biggest Deal

Investors are sending a clear signal they’re willing to snap up jumbo corporate bond offerings.

Dell Inc. sold $20 billion of bonds to back its takeover of EMC Corp. in the year’s second-biggest corporate offering. The company received investor orders in excess of $80 billion, allowing it to boost the size of the deal from $16 billion and reduce the interest rates, according to data compiled by Bloomberg and a person familiar with the matter.

The notes traded above their issue price after being sold Tuesday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

“There’s clearly a hunger for new issuance out in the market,” said Greg Nassour, principal and co-head of investment-grade portfolio management at Vanguard Group. Investors “need to put cash to work.”

Driving this debt binge is a universe of negative-yielding bonds that has expanded to more than $9 trillion as a result of the European Central Bank and Bank of Japan lowering interest rates below zero. That’s pushing cashed-up investors to chase higher returns in company debt. Funds that purchase investment-grade bonds saw inflows of $1.13 billion last week, the 10th straight week of deposits, according to Lipper US Fund Flows data.

The demand allowed Dell to lower the yields on the debt. The longest part of the offering, $2 billion of 8.35 percent percent 30-year bonds, will pay 5.75 percentage points more than similar-maturity Treasuries, the person said. While that’s down from an original offer of 6.25 percentage points, it’s 3.55 percentage points 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 $4.5 billion of 6.02 percent 10-year notes will yield 4.25 percentage points above government debt, said the person. That’s a premium of more than 1.5 percentage points over comparable notes. The debt was first marketed at 4.75 percentage points.

Busy Week

Dell’s bond deal comes on the heels of the busiest week for debt sales by blue-chip companies in the U.S and Europe since January. Top-rated issuers sold about $74 billion of notes in the five-day period ending May 13, according to data compiled by Bloomberg.

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.

Gimme Credit analyst Dave Novosel said in a note on Tuesday that while the notes resemble some high-yield offerings, they’ll “benefit from the enormous size of the company, its diverse product set, and most importantly, the secured nature of the bonds.”

Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. managed 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.

Dell’s deal was the biggest since Anheuser-Busch InBev NV sold a record $46 billion of notes in January to finance its buyout of SABMiller Plc.

Dell spokesman David Frink declined to comment.

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