Bonds backing Dell Technologies rallied today following reports that the company is considering an initial public offering, which could provide a liquidity influx just as the maturities across the company’s LBO-inflated debt stack begin to mount.
After founder Michael Dell took the company private in the 2013, the company placed $20 billion of high-grade, senior secured notes (BBB–/Baa3) on the private market in May 2016 to facilitate its $67 billion acquisition of EMC Corp. The offering remains the fifth largest corporate bond placement on record, according to LCD. The $2 billion issue of 8.35% bonds due 2046, which were priced at the time at T+575, traded today at T+305, or 25 bps tighter on the day and down from T+362 in early December, trade data show.
Similarly, the 6.02% senior secured notes due 2026, which were priced in May 2016 at T+425, traded 20 bps tighter today on either side of T+177, or 30 bps tighter week to week and down from T+229 in early December.
The issuer’s $5 billion term loan due 2023, which the company repriced last year, also firmed up on the news. Dell’s term loan due September 2023 (L+200, 0.75% LIBOR floor) was quoted at 100.5/100.75 this morning, up from 100.375/100.875 yesterday.
Dell carried roughly $52.5 billion of consolidated debt as of Nov. 3, 2017. Near-term debt maturities in 2018 include $500 million of 5.65% Dell unsecured notes (BB–/Ba2/BB+) due on April 15 and $2.5 billion of legacy EMC 1.875% unsecured notes that come due on June 1. Additionally, it started the year with a $1.4 billion remaining principal balance on its A-3 term loan due December 2018. The LBO debt from May 2016 then starts to roll off in 2019, when $3.75 billion of Dell International 3.48% senior secured notes come due on June 1, 2019, immediately followed by the maturity of the company’s $600 million issue of 5.875% unsecured notes due June 15, 2019.
Bloomberg on Thursday reported that Dell’s board would take up strategic options for the business, including an IPO, citing undisclosed sources close to the matter. However, a range of options will be on the table, including further acquisitions and/or a pursuit of the remaining stake in VMWare that Dell does not already own, according to press reports. Silicon Valley–based VMWare is controlled by Dell Technologies, which holds roughly 82% of the common stock and nearly all of the voting power, but the debt at VMWare is currently considered by ratings agencies as insulated from Dell credit risk given VMWare’s stand-alone, severable independent operating profile.
VMWare’s BBB–/Baa2 3.9% notes due Aug. 21, 2017 notes widened as much as 13 bps today, to T+142. The notes were placed last August, at T+170, as part of a $4 billion debut offering of public notes to fund higher shareholder returns and potential M&A options. — John Atkins