EMC Bonds Slide as Dell Buyout Seen Threatening Current Lenders

EMC Corp. bonds are plummeting as reports of a potential buyout by Dell Inc. and Silver Lake Management spark concern the purchase would undermine current bondholders’ place in the capital structure.

EMC’s $1 billion of notes maturing in June 2023 tumbled to 89.8 cents on the dollar to yield 5 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That brought their two-day decline to 9.1 cents.

Dell is speaking to banks about raising at least $40 billion to finance the deal, two people with knowledge of the matter said Thursday. That’s creating concern among investors that lent Hopkinton, Massachusetts-based EMC $5.5 billion about how the combination would affect them.

The data-storage company’s bonds lack protections that would have allowed lenders to demand that EMC repay them early in the event of an ownership change, according to debt researcher Covenant Review.

EMC Corp. spokesman Dave Farmer, David Frink of Dell and Gemma Hart, a spokeswoman for Silver Lake at Brunswick Group, declined to comment.

The credit agreement also allows EMC to issue new debt with priority over existing bonds, meaning creditors wouldn’t have access to assets if the company defaulted until after new lenders had been paid. Covenant Review called the design a "glaring weakness" in a note to clients.

A deal between Dell and EMC may be struck as soon as Monday, two people with knowledge of the matter said today. Dell is offering EMC about $33 a share for the transaction, said the person, who asked not to be identified discussing private matters.

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