LPC: Dell's window wide open for EMC acquisition loan
By Lynn Adler and Jonathan Schwarzberg
NEW YORK May 26 (Reuters) - Computer giant Dell's decision to wait out months of extreme credit market volatility appears to have paid off as it launched the biggest US syndicated term loan since last November into a market eager for exposure to debt backing the US$67bn acquisition of EMC Corp.
The US$5bn Term Loan B (TLB), which hit the market more than seven months after the largest technology industry acquisition was announced, is US$3bn less than earlier planned, heightening demand for one of the few large new-money deals this year.
Dell waited out months of market volatility before initiating its massive borrowing. Reflecting the broadly improved tone, leveraged loan prices have rallied to levels seen last November after slumping to four-year lows in February.
Investor hunger for Dell's leveraged loan became clear after a blockbuster investment grade bond sale last week. Orders surged to more than five times the available bonds, leading the company to increase the deal size by 25% to US$20bn.
The size of the TLB was cut, as a result. This loan, similar to the bonds, carries investment grade ratings. The company's ratings, however, are below investment grade.
There has been a glut of technology sector loan issuance backing mergers. However, Dell's reduced loan size, investment grade credit ratings on the new loans, and overall secondary market rally likely will increase demand for the company's acquisition financing, investors said.
"Out of the gate, leverage seems reasonable and cash flow generation is strong," Jean-Philippe Levilain, global head of leveraged loans at AXA Investment Managers, said of Dell. "The company has demonstrated in the recent past that its focus was on deleveraging, and investors probably give them credit for this."
Dell's total adjusted leverage will be 4.0 times after the acquisition with secured leverage coming in at 2.8 times, according to sources. The company anticipates achieving investment grade corporate ratings within two years. Continuación...