A record-breaking technology sector deal may also leave a second entry in the history books: the largest junk bond offering of all time.
As Dell seeks to tie up its $63bn takeover of data storage provider EMC , investors are gearing up for a multibillion-dollar junk bond offering at a time when fixed-income investors are demanding higher interest rates for owning lower quality debt.
According to people familiar with the deal, the PC maker is expected to sell between $10bn and $15bn in junk-rated paper across several maturities to help fund about $40bn in new debt financing. Depending on investor appetite, Dell could well topple Numericable’s $10.9bn speculative-grade offering to fund its acquisition of SFR.
The deal comes at a challenging time for US debt markets, with investors recently demanding concessions from junk rated companies — those rated double B plus or Ba1 and lower by Standard & Poor’s and Moody’s, respectively — to complete recent offerings.
Altice, the European cable group, scaled back an offering in late September while Frontier Communications was forced to offer more attractive interest rates relative to its other debts to tempt investors to a $6.6bn sale last month.
Jonathan Stanley, a portfolio manager with fixed-income manager Newfleet Asset Management, said: “If [Dell] were to come to the market with that size they’d have to pay up with the volatility we’ve seen.”
Yields on double B-rated corporate debt surged to 6.32 per cent at the start of October, its highest level in more than three years, according to Bank of America Merrill Lynch. A rally over the past week has seen those yields — which move inversely to prices — slide back to 5.8 per cent, although they remain above where they started the year.
The purchase of EMC by Dell would rank as the third-largest acquisition by a junk-rated company, behind America Online’s $112bn deal for Time Warner and the pending takeover of Time Warner Cable by Charter Communications, according to Dealogic data reviewed by the Financial Times and Moody’s.
