Dell Bond Buyers Reap $300 Million Gain Day After Offering

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Investors who managed to beat out the competition for a slice of Dell Inc.’s $20 billion bond deal are already being rewarded.

The notes sold by Dell on Tuesday gained more than $300 million by early Wednesday in New York, according to data compiled by Bloomberg. The biggest rise was on Dell’s 30-year bonds, which offered a coupon exceeding 8 percent, a rarity for investment-grade bonds. The jump comes after demand for the offering outstripped bonds on offer by more than four times.

The computer maker’s effort to complete its $67 billion takeover of EMC Corp. got a boost with the increased bond offering, easing its way toward lining up the rest of the debt needed to seal the deal. The company was able to lower the interest it had to pay on the notes by as much as 0.75 percentage point on some of the debt, Bloomberg data show.

Dell “clearly shows that people do have a lot of money to put to work,” said Lon Erickson, a portfolio manager at Thornburg Investment Management, which oversees $54 billion. “It kind of met a bar that was probably too good to pass up.”

Its $2 billion of 30-year bonds climbed as high as 103.5 cents on the dollar on Wednesday morning after pricing the day before at 99.92 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt dropped to 101.3 cents at 4:32 p.m.

‘Meaningfully Higher’

Creditsights Inc. analysts led by Erin Lyons maintained their equivalent of a buy rating on the bonds in a note on Tuesday, saying they expect the debt to continue to outperform.

“Demand will likely remain high over the near term and after the initial flipping settles, as Dell bonds offer a meaningfully higher yield than one can find in most other investment-grade names,” they wrote.

Dell’s 30-year bonds yield more than 3.5 percentage points higher than the average for notes with similar ratings and maturities, according to Bank of America Merrill Lynch data. The 10-year bonds have a premium of 1.46 percentage points over comparable debt.

Dell’s deal was the biggest this year since Anheuser-Busch InBev NV sold $46 billion of notes in January to finance its buyout of SABMiller Plc. The computer maker’s sale pushed investment-grade issuance for May past $100 billion.

(Updates with bond price in fifth paragraph.)
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