Dell’s $16 billion-plus six-part secured notes see initial talk circulate, could price Tuesday

By Paul A. Harris

Portland, Ore., May 16 – Initial price talk on Dell Inc.’s proposed $16 billion minimum six-part offering of senior secured notes (BBB-) circulated on Monday, according to market sources.

The secured portion of the bond financing is receiving an investment-grade execution.

The near maturity tranches are being guided at spreads to Libor, or Libor equivalent. Included are three-year notes with initial price talk of Libor equivalent plus 325 basis points; earlier whisper was in the 4% yield context. Five-year notes are initially talked at Libor equivalent plus 375 bps; earlier whisper in was in the 4.75% yield context).

The longer maturity tranches are initially talked at spreads to Treasuries.

These include seven-year notes initially talked at Treasuries plus 437.5 bps (earlier whisper was in the 5.5% yield context); 10-year notes initially talked at Treasuries plus 475 bps (earlier whisper was in the 6% area); 20-year notes initially talked at Treasuries plus 600 bps (earlier whisper was in the 8% context); and 30-year notes, initially talked at Treasuries plus 625 bps (earlier whisper was also in the 8% context).

Final talk had been expected to surface as early as late Monday; however, it was not available at press time, sources said.

The deal could price on Tuesday, they added.

The overall secured bond portion of the financing – the final size of which remains to be determined – was said to be playing to $30 billion of demand at midday Monday. Demand was most concentrated on the 10-year notes, with the second-most amount of demand being in the five-year tranche. The three-year tranche is seeing the third-most demand and the 30-year tranche seeing the fourth-most.

As reported, dealers are keen to move as much secured paper as possible in order to hold the line on the aggregate interest rate of the acquisition financing.

An offering of speculative-grade senior unsecured notes could surface as early as this week, sources said on Monday. However the overall size of the unsecured portion of the bonds is now expected to be around $3.25 billion, they say, dramatically reduced from the $9 billion that had been expected in recent weeks.

In part because the junk-rated unsecured bond offering is expected to shrink, high-yield investors are highly likely to put in for the investment-grade rated secured bonds, sources say.

BofA Merrill Lynch, Barclays, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC are joint bookrunners for the secured bond offering.

Proceeds will be used to help fund the acquisition of EMC Corp.

Dell is a Round Rock, Texas-based technology and services company owned by Michael S. Dell, founder, chairman and chief executive officer, MSD Partners and Silver Lake. EMC is a Hopkinton, Mass.-based technology company. The combined enterprise systems business will be located in Hopkinton, Mass.

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