Hi-Grade: Apple Extends Epic 2017 Bond Issuance Run with $5B Print

Apple (Nasdaq: AAPL) today placed $5 billion of senior notes in its fourth benchmark offering of the year, across $1 billion of 1.5% two-year notes due Sept. 12, 2019 at T+25; $1 billion of 2.1% five-year notes due Sept. 12, 2022 at T+48; $2 billion of 2.9% 10-year notes due Sept. 12, 2027 at T+85; and $1 billion of 3.75% 30-year bonds due Sept. 12, 2047 at T+110. The notes were inked 12.5–15 bps through initial whispers.

Last year, Apple’s U.S. bond offerings totaled an outsized $22.5 billion over the full 12-month period, and today’s offering moved Apple’s 2017 total north of that, to $23 billion. Apple had already inked a $1 billion, “no-grow” offering on June 13 of 3% 10-year “green” senior unsecured bonds due June 20, 2027 at T+82, after larger-scale offerings this year in February ($10 billion in nine parts) and May ($7 billion in six parts), which furthered the steady debt financing of the company’s now $300 billion capital-return program, while also addressing a quickening cadence of debt maturities. Apple also inked $1 billion of Formosa bonds in February, €2.5 billion of notes in May, and C$2.5 billion of 2.513% notes due Aug. 19, 2024 last month, the latter representing the biggest single tranche of debt placed buy a foreign issuer on Canada’s Maple bond market.

For reference, Apple 2.3% notes due May 11, 2022 traded on Friday at T+39, or a G-spread of 44 bps (before accounting for roughly two basis points on the curve), from pricing in May at T+45. The 3.2% notes due May 11, 2027, which were priced at T+85, traded last week and today near T+80, and the 4.25% bonds due Feb. 9, 2047, which were placed in February at T+115, traded late last week at T+105, and today at T+112.

As with previous offerings, proceeds will be used for repurchases of the company’s common stock and payment of dividends under its program to return capital to shareholders, and as funding for working capital, capital expenditures, acquisitions and repayment of debt, filings show.

Apple’s ever-expanding capital returns program was boosted again in May, including $35 billion added to the share-repurchase plan (now $210 billion) and 10.5% added to the dividend payout. The total size of the capital-return scheme is $300 billion through March 2019 (the horizon was extended by four quarters), and S&P Global Market Intelligence back in May had estimated roughly $56 billion remaining under that plan.

The outlook remains stable across the AA+/Aa1 ratings profile. “Despite the maturing smart phone market, we expect Apple to generate revenue growth near the mid-single digits in fiscal 2017. We believe the 10th-anniversary edition of the iPhone, expected to launch later this year, will spur further growth into fiscal 2018,” S&P Global Ratings stated in June, noting a third-quarter revenue rise of 7% to $45.4 billion on growth in iPhone, Mac and iPads, as well as a 22% expansion in services, offset continued weakness in Greater China. Terms:

Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1 billion
Issue SEC-registered senior notes
Coupon 1.500%
Price 99.914
Yield 1.544%
Spread T+25
Maturity Sept. 12, 2019
Call make-whole T+3
Px Talk guidance T+25 (the number); IPT T+37.5 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1 billion
Issue SEC-registered senior notes
Coupon 2.100%
Price 99.882
Yield 2.125%
Spread T+48
Maturity Sept. 12, 2022
Call make-whole T+7.5 until notes are callable at par from one month prior to maturity
Px Talk guidance T+50 area (+/- 2 bps); IPT T+62.5 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $2 billion
Issue SEC-registered senior notes
Coupon 2.900%
Price 99.888
Yield 2.913%
Spread T+85
Maturity Sept. 12, 2027
Call make-whole T+15 until notes are callable at par from three months prior to maturity
Px Talk guidance T+87.5 area (+/- 2.5 bps); IPT T+100 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1 billion
Issue SEC-registered senior notes
Coupon 3.750%
Price 99.429
Yield 3.782%
Spread T+110
Maturity Sept. 12, 2047
Call make-whole T+17.5 until notes are callable at par from six months prior to maturity
Trade Sept. 5, 2017
Settle Sept. 12, 2017
Px Talk guidance T+112.5 area (+/- 2.5 bps); IPT T+125 area
Notes proceeds for share repurchases and payment of dividends under its program to return capital to shareholders, and GCP including funding for working capital, capital expenditures, acquisitions, and repayment of debt

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Hi-Grade Bonds: Coach Wraps $1B Offering Backing $2.4B Kate Spade Buy

Coach Inc. today locked in $1 billion of acquisition-related bond funds to finance its purchase of Kate Spade. The two-part senior offering included $400 million of 3% notes due July 15, 2022 at T+140, or 3.106%; and $600 million of 4.125% notes due July 15, 2027 at T+200, or 4.142%.

Both tranches were printed at the firm end of guidance in the T+145 and T+205 areas and through initial whispers in the areas of T+162.5 and T+225, respectively.

The New York–based luxury-goods company placed a debut senior unsecured offering in February 2015 for its acquisition of luxury-footwear company Stuart Weitzman. It printed $600 million of 4.25% 10-year notes due April 2025 at T+225, and the issue has traded over the last month at G-spreads bracketing 185 bps, before accounting for roughly 11 bps on the curve, according to MarketAxess.

In May, Coach announced that it would acquire competitor Kate Spade & Company for $18.50 per share in cash for a total transaction value of $2.4 billion. The deal is expected to close in the third quarter of this calendar year. Since then, Coach disclosed that it obtained a $2.1 billion unsecured bridge term loan credit family from BAML, and a $2 billion loan package from a group of 13 banks, the latter across a $900 million revolving loan facility; an $800 million, six-month term loan credit facility; and a $300 million, three-year term loan facility.

The acquisition will be funded with proceeds from today’s bond offering, along with cash on hand at Coach and Kate Spade, and roughly $1.1 billion in term loans (that the company expects to borrow at or around the time the merger is completed), according to regulatory filings. Additionally, Kate Spade’s $385 million term loan will be repaid with its own cash on hand, filings show.

The deal carries a special mandatory redemption at 101 if the merger is not completed by Feb. 7, 2018. Additionally, the structure offers investor protections via 25 bps coupon steps per each notch downgrade by ratings agencies below the investment-grade level, to a maximum of 200 bps, falling away on a rise at BBB+/Baa1.

Earlier today, S&P Global Ratings, Moody’s, and Fitch assigned respective BBB–/Baa2/BBB ratings to the new offering, which is expected to be $1 billion in size.

The acquisition did not trigger ratings actions from S&P Global Ratings, which only confirmed its current rating and stable outlook. “Pro forma for the new debt and acquisition, we forecast FFO to debt will decrease to mid-30% and improve to high-30% by the end of fiscal 2018 on the repayment of the $800 million term loan and continued EBITDA growth,” the agency said today.

Following the merger announcement, Moody’s reviewed its rating for a possible downgrade, but last week it confirmed the rating and revised the outlook to negative. “While the acquisition will increase the combined company’s pro forma leverage to 3.3 times from 2.0 currently, we expect leverage to decline to about 2.6 times in the next 12 months as the company plans to repay $800 million of debt using its cash balance and make additional prepayments using operating cash flow,” analysts said today.

“The negative outlook reflects the enhanced execution, integration and business risks that accompany the acquisition of Kate Spade particularly in light of the secular shifts in the overall retail business environment, the ever changing fashion trends and over promotion which could result in slowing EBITDA growth,” Moody’s said on June 1 when it revised its outlook.

Fitch—which last month placed its BBB rating on Rating Watch Negative, and anticipates a one-notch downgrade to BBB– once the merger is complete—today assigned its current rating to the new offering. “The acquisition would cause Coach’s leverage to increase from the current 2.6x level to 3.7x on a pro forma basis at closing and decline to around 3.3x at the end of FY 2018 upon the repayment of the $800 million six-month term loan. Leverage is expected to trend to under 3.0x over the following two years on EBITDA growth,” analysts said today. Terms:

Issuer Coach Inc.
Ratings BBB–/Baa2/BBB
Amount $400 million
Issue SEC-registered senior notes
Coupon 3.000%
Price 99.505
Yield 3.106%
Spread T+140
Maturity July 15, 2022
Call Make-whole T+25 until notes are callable at par from one month prior to maturity
Px Talk Guidance: T+145 area (+/– 5 bps); IPT: T+162.5 area
Issuer Coach Inc.
Ratings BBB–/Baa2/BBB
Amount $600 million
Issue SEC-registered senior notes
Coupon 4.125%
Price 99.858
Yield 4.142%
Spread T+200
Maturity July 15, 2027
Call Make-whole T+30 until notes are callable at par from three months prior to maturity
Trade June 6, 2027
Settle June 20, 2017
Books BAML/JPM(act)/HSBC(pass)
Px Talk Guidance: T+205 area (+/–5 bps); IPT: T+225 area
Notes Proceeds will be used to fund a portion of the Kate Spade acquisition
Deal includes 25 bps coupon steps per notch downgrade below investment grade
Special mandatory redemption at 101 if merger is not complete by Feb. 7, 2018

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S&P: $10.3T of Corporate Debt Set to Mature Over Next 5 years

rated debt schedule to mature

The wall of global corporate debt coming due is growing.

There is some $10.3 trillion in corporate rated debt worldwide scheduled to mature by 2021, according to S&P. That’s a 4% increase from the figure one year ago, when S&P estimated some $9.9 trillion that was scheduled to mature through 2020.

U.S. based corporates account for the biggest slice of the global debt pie, at 45%.

Of the $10.3 trillion maturing by 2021, 26% is speculative grade, S&P says. – Tim Cross

This analysis is taken from a longer piece of research, available to subscribers to S&P’s Global Credit Portal. It was written by Diane Vazza, Nick Kramer, Evan Gunter, and Andrew South.

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Hi-Grade: As Bond Market Beckons, Teva Looks to Accelerate Actavis Financing

Teva Pharmaceutical Industries today confirmed widespread market expectations that a much-anticipated blockbuster debt offering backing its $40.1 billion acquisition of Allergan’s generics business, Actavis Generics, may be only days away.

Teva logoTeva CEO Erez Vigodman said today on a 2016 updated guidance call that management is “closely monitoring the corporate bond markets” for a potential acceleration of the bond deal, “given the very attractive terms currently prevailing there.” (Notably, Walt Disney last Thursday printed the lowest-ever coupons for 10- and 30-year debt, while Molson Coors Brewing on June 28 garnered the lowest 30-year coupon by a BBB–/Baa3 issuer, according to LCD, an offering of S&P Global Market Intelligence.)

Teva officials said on today’s call that the only remaining obstacle to the deal closing is clearance from the Federal Trade Commission (FTC), which “could come at any time.” The company today also filed a Form F-3 post-effective amendment with the SEC, citing current estimates for the acquisition close to “occur shortly.”

According to reports, Teva has tapped BAML, Barclays, BNP Paribas, Credit Suisse, HSBC, and Mizuho for fixed-income calls in the U.S. through tomorrow, followed by presentations in Europe Monday and Tuesday, as the company eyes issuance in denominations potentially including U.S. dollars, euros, and Swiss Francs.

But the total size of the bond offerings may also be smaller than expected. Teva said today that the net cost of the acquisition has shrunk by $5 billion, to $35.1 billion, based on a substantially higher-than-expected $2.9 billion of upfront proceeds this year from mandated asset divestitures to garner regulatory approvals (Teva last year envisioned shedding only about $400 million of assets), $1 billion from a working capital adjustment and proceeds from a sale of products back to Allergan, and $1.5 billion from a change in the expected equity value.

The lower cost necessitates less in debt financing, the company said today. Deal financing needs started at $27 billion last year, and are now roughly $23 billion, including the $5 billion of A term loans ($2.5 billion due November 2018 and $2.5 billion tranche due November 2020) inked late last year, alongside a $4.5 billion senior unsecured revolver. Net debt at closing is now seen at roughly $34 billion, or $4 billion less than initial company projections last year, and that suggests that Teva may shop a long-term debt package below widespread expectations in recent weeks for total issuance in the neighborhood of $20 billion.

Teva expects to slash its net financial debt leverage over the next few years via the deployment of its roughly $25 billion of projected cumulative free cash flow through 2019, including the $2.9 billion of upfront asset-divestiture proceeds, and reflecting expectations for a ramp higher in free cash flow from $4.9 billion last year, to $7.2–7.8 billion annually by 2019.

However, Fitch in April cautioned that “elevated debt leverage may linger somewhat” following the acquisition, as the company has stated that it intends to stay on the hunt for M&A opportunities over the medium-term. But Fitch does expect leverage—which it sees spiking to more than 4x pro forma for the deal close, from 1.5x at the end of 2015—to ebb near 3x over the next two years as it repays 2016–2017 debt maturities and term-loan obligations, keeping Teva comfortably in compliance with credit agreement covenants.

(The term loans include a leverage test set at 5.25x, stepping to 5x two quarters after closing, and then to 4.25x two quarters after that, and to 4x two quarters after that, and then to 3.5x thereafter. The term loan is also covered by an interest-coverage test.)

While ratings agencies are reviewing all three sides of the present BBB+/Baa1/BBB+ profile for downgrade, all three agencies have stated in recent months that downgrades are likely to be limited to one notch.

Teva has not tapped the U.S. markets for long-term debt financing since December 2012, when it placed $2 billion of senior notes across $700 million of 2.25% long seven-year notes due March 18, 2020 at T+110, and $1.3 billion of 2.95% 10-year notes due Dec. 18, 2022 at T+125. Proceeds of that offering backed the repayment of debt associated with its $6.8 billion acquisition of Cephalon in 2011, which necessitated the issuance that year of $5 billion of notes in six parts.

Teva debt has held steady through the expectations for large-scale issuance. The 3.65% notes due November 2021, which date to that 2011 bond offering as a 10-year deal at T+170, changed hands today at T+132 versus the five-year Treasury rate, or the firm end of a trading range from T+130–150 in recent weeks, with the wider levels corresponding with the rout of global credit markets late last month on the shattering Brexit outcome, trade data show. — John Atkins

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Dell Wraps $3.25B Bond Offering Backing EMC Deal Inside of Price Talk

The Dell/EMC merger financing via issuer Diamond Finance was completed this afternoon via a J.P. Morgan-steered bookrunner octet. Terms on the BB/Ba2/BB+ transaction were finalized 25 bps inside of formal price guidance and more than that inside the early market whispers, according to sources. Nonetheless, an early read from the gray market points to at least a one-point gain on the break for each series. Take note of a first call premium of just par plus 50% coupon on the five-year tranche despite the short schedule, as well as a covenant that links the change-of-control put provision to a takeover event tied to credit-rating downgrades, according to sources. Moreover, there is a slightly larger-than-typical, but increasingly popular, 40% equity clawback option on each tranche during the call-protected period. Proceeds from the 144A-for-life offering will be used to help fund the acquisition of EMC, creating the world’s largest privately controlled technology company, according to Dell. Terms:

Issuer Dell/Diamond 1 & 2 Finance
Ratings BB/Ba2/BB+
Amount $1.625 billion
Issue senior notes (144A-life)
Coupon 5.875%
Price 100
Yield 5.875%
Spread T+465
Maturity June 15, 2021
Call nc2 @ par+50% coupon
Trade June 8, 2016
Settle June 22, 2016 (T+10)
Joint bookrunners JPM/CS/BAML/Barc/Citi/GS/DB/RBC
Price talk 6.25% area (launched at 5.875%)
Notes first call par+50% coupon; w/ two-year equity clawback option for up to 40% of the issue @105.875.
Issuer Dell/Diamond 1 & 2 Finance
Ratings BB/Ba2/BB+
Amount $1.625 billion
Issue senior notes (144A-life)
Coupon 7.125%
Price 100
Yield 7.125%
Spread T+555
Maturity June 15, 2024
Call nc3 @ par+75% coupon
Trade June 8, 2016
Settle June 22, 2016 (T+10)
Joint bookrunners JPM/CS/BAML/Barc/Citi/GS/DB/RBC
Price talk +125 bps to 5-year (launched at 7.125%)
Notes first call par+75% coupon; w/ three-year equity clawback option for up to 40% of the issue @107.125.

Senate hearing opens discussion on BDC regulation changes

A hearing by the Senate banking committee showed bi-partisan agreement for BDCs as a driver of growth for smaller U.S. companies, but exposed some rifts over whether financial companies should benefit from easier regulation.

BDCs are seeking to reform laws, including allowing more leverage of a 2:1 debt-to-equity ratio, up from the current 1:1 limit. They say the increase would be modest compared to existing levels for other lenders, which can reach 15:1 for banks, and the low-20x ratio for hedge funds.

A handful of BDCs are seeking to raise investment limits in financial companies. They argue that the current regulatory framework, dating from the 1980s when Congress created BDCs, fails to reflect the transformation of the U.S. economy, away from manufacturing.

BDCs stress that they are not seeking any government or taxpayer support.

They are also seeking to ease SEC filing requirements, a change that would streamline offering and registration rules, but not diminish investor protections.

Ares Management President Michael Arougheti told the committee members in a hearing on May 19 that although BDCs vary by scope, they largely agree that regulation is outdated and holding back the industry from more lending from a sector of the U.S. economy responsible for much job creation.

“While the BDC industry has been thriving, we are not capitalized well enough to meet the needs of middle market borrowers that we serve. We could grow more to meet these needs,” Arougheti said.

In response to criticism about expansion of investment to financial services companies, the issue of the 30% limit requires further discussion, Arougheti said.

The legislation under discussion is the result of lengthy bi-partisan collaboration and reflects concern about increased financial services investments, resulting in a prohibition on certain investments, including private equity funds, hedge funds and CLOs, Arougheti added.

“There are many financial services companies that have mandates that are consistent with the policy mandates of a BDC,” Arougheti added.

Senator Elizabeth Warren (D-MA) raised the issue of high management fees of BDCs even in the face of poor shareholder returns. Several BDCs have indeed moved to cut fees in order to better align interests of shareholders and BDC management companies.

She said that Ares’ management and incentive fees have soared, at over 35% annually over the past decade, outpacing shareholder returns of 5%, driving institutional investors away from the sector, and leaving behind vulnerable mom-and-pop retail investors. Arougheti countered by saying reinvestment of dividends needed to be taken into account when calculating returns, and said institutional investors account for 50–60% of shareholders.

Warren said raising the limit of financial services investment to 50%, from 30%, diverts money away from small businesses that need it, while BDCs still reap the tax break used to incentivize small business investment.

“A lot of BDCs focus on small business investments and fill a hole in the market. A lot of companies in Massachusetts and across the country get investment money from BDCs,” said Warren.

“If you really want to have more money to invest, why don’t you lower your high fees and offer better returns to your investors? Then you get more money, and you can go invest it in small businesses,” Warren said.

Brett Palmer, President of the Small Business Investor Alliance (SBIA), said the May 19 hearing, the first major legislative action on BDCs in the Senate, was a step toward a bill that could lead to a new law.

“There is broad agreement that BDCs are filling a critical gap in helping middle market and lower middle market companies grow. There is a road map for getting a BDC bill across the finish line, if not this year, then next,” Palmer said, stressing the goal was this year.

Technically, the hearing record is still open. The Senate banking subcommittee for securities and investment could return with further questions to any of the witnesses. Then, senators can decide what the next stop will be, ranging from no action to introduction of a bill.

Pat Toomey (R-PA) brought up the example of Pittsburgh Glass Works, a company that has benefited from a BDC against a backdrop that has seen banks pulling back from lending to smaller companies following the financial crisis, resulting in a declining number of small businesses from 2009 to 2014.

The windshield manufacturer, a portfolio company of Kohlberg & Co., received $410 million in financing, of which $181 million came from Franklin Square BDCs.

“Business development companies have stepped in to fill that void,” Toomey told the committee hearing. “For Pittsburgh Glass, it was the best financing option available to them.”

FS Investment Corp.’s investment portfolio showed a $68 million L+912 (1% floor) first-lien loan due 2021 as of March 31, an SEC filing showed.

Arougheti cited the example of OTG Management, a borrower of Ares Capital. OTG Management won a contract to build out and operate food and beverage concessions at JetBlue’s terminal at New York airport JFK, but was unable to borrow from traditional senior debt lenders or private equity firms due to its limited operating history.

Ares Capital’s investment in OTG Management included a $24.7 million L+725 first-lien loan due 2017 as of March 31, an SEC filing showed. — Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.



Bond prices notch small gain with broadly positive reading

The average bid of LCD’s flow-name high-yield bonds rose 25 bps in today’s observation, to 94.98% of par, yielding 8.01%, from 94.73, yielding 8.04%, on May 12. Performance was broadly positive, with nine gainers versus one unchanged issue and five decliners.

The modest gain builds on an increase of 23 bps in Thursday’s observation, for a net advance of 49 bps week over week on account of rounding. Going back two weeks, the average bid is still down 48 bps from 95.46 on May 3. Losses in late April still weigh heavily in the trailing four-week observation, which is negative 171 bps.

The advance over the past week comes amid some signs of cash returning to the asset class following heavy withdrawals earlier in the month, a rise in oil prices to the tune of 11–13% over the past week, and some strength in the U.S. Treasury markets, which lowered yields. As for the cash-flow figures, certainly the one-week measures by Lipper were deeply negative over the past two weeks, but day-to-day flows for exchange-traded funds suggest an incoming reversal, what with the largest, the iShares HYG, netting an infusion of approximately $746 million over the past four sessions, trade data show.

Recall that there was an initial reading in the red on April 26 after a steady run higher over the previous month to a 2016 peak of 96.87 on April 21. That reading was still 179 bps above the previous near-term high of 95.08 on March 22 and up 182 bps from the prior peak of 95.05 on March 3. The current bid price is now down 189 bps from that 2016 high.

With today’s modest gain in the average bid price, the average yield to worst slipped three basis points, to 8.01%, but the average option-adjusted spread to worst cinched inward by seven basis points, to T+655. As with the average price, both are two-week low metrics on the sample of 15 bonds.

Given a smaller sample of high-beta credits, the LCD flow names have been variable against broader market averages. For example, the S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Monday, May 16 with a 7.31% yield to worst, but an option-adjusted spread to worst of T+617.

Bonds vs. loans
The average bid of LCD’s flow-name loans was essentially steady, but technically down one basis point in today’s reading, at 98.87% of par, for a discounted loan yield of 4.23%. The gap between the bond yield and the discounted loan yield to maturity is 378 bps. — Staff reports

  • The data: Bids increase: The average bid of the 15 flow names rose 25 bps, to 94.98.
  • Yields decrease: The average yield to worst slipped three basis points, to 8.01%.
  • Spreads decrease: The average spread to U.S. Treasuries ticked inward by seven basis points, to T+655.
  • Gainers: The largest of the nine gainers were equally 1.5 points to 81 apiece for Hexion 6.625% notes due 2020 andValeant Pharmaceuticals International 5.875% notes due 2023.
  • Decliners: The largest of the six decliners was Community Health Systems 6.875% notes due 2022, which shed 1.75 points, to 85.5.
  • Unchanged: Only Dish Network 5.875% notes due 2022 were unchanged, at 96.5.

Hi Grade: Dell Launches $20B Bond Offering Backing EMC Buy; 4th-Largest Deal on Record

Dell has launched $20 billion of 144A/Reg S first-lien debt under a high-grade BBB–/Baa3/BBB– senior secured profile, or the high end of expectations for a $16–20 billion offering backing the $67 billion acquisition of EMC Corp. The offering, via indirect parent Denali Holding and its debt-issuing entities Diamond 1 Finance and Diamond 2 Finance., ultimately garnered an order book roughly four times today’s offering amount after orders continued overnight, sources said. The offering is now in six parts, after Dell opted not to proceed with two initially proposed, short-dated FRN tranches.

dellToday’s deal becomes the fourth largest investment-grade corporate offering on record, behind M&A-driven  deals for Verizon Communications ($49 billion in September 2013), Anheuser-Busch InBev  Finance ($46 billion in January this year), andActavis Funding ($21 billion in March 2015), according  to  S&P Global Market Intelligence.


Spreads were set firm to guidance ranges of plus or minus 12.5 bps around midpoint levels, which were established 37.5–62.5 bps through early whispers, and which participants relate led to some resistance to final spread assignments and resulting allocation challenges. The deal is structured across $3.75 billion of three-year notes at T+250 (guidance T+262.5 area; IPT T+325 area), $4.5 billion of five-year notes at T+312.5 (guidance T+325 area; IPT T+375 area), $3.75 billion of seven-year notes at T+387.5 (guidance T+400 area; IPT T+437.5 area), $4.5 billion of 10-year notes at T+425 (guidance T+437.5 area; IPT T+475 area), $1.5 billion of 20-year bonds at T+550 (guidance T+562.5 area; IPT T+600 area), and $2 billion of 30-year bonds at T+575 (guidance T+587.5 area; IPT T+625 area).

The issues are on track for reoffer yields near 3.45% for 2019 notes, 4.38% for 2021 notes, 5.42% for 2023 notes, 6% for 2026 notes, 8.07% for 2036 bonds, and 8.3% for 2046 bonds.

As reported yesterday, fewer than 10 long-bond issues have been printed at yields north of 7% under investment-grade imprimaturs in recent years, according to S&P Global Market Intelligence LCD. Energy-sector names account for the most recent entries, including senior unsecured deals from Enbridge Energy Partners last October with BBB/Baa3 7.375% notes due 2045 priced at T+462.5 or 7.49%, and Noble Holding International in March 2015 with BBB/Baa3 6.95% notes due 2045 priced at T+437.5 or 7.06%, both hard on the heels of recent ratings downgrades.

More recently, Western Digital on March 30 printed 2023 senior secured notes—backing its acquisition of SanDisk—as $1.875 billion of a 7.375% par-priced seven-year issue at T+577 under a split BBB–/Ba1/BBB– secured-debt profile.

Investor protections in the senior secured debt offering will include coupon step-up provisions of 25 bps per each step of downgrade below the investment-grade ratings threshold, with a cap at 200 bps; a special mandatory redemption provision at 101 in the event the merger (which is expected to close by the end of October) is not consummated by the end of the year; change-of-control puts at 101; make-whole call provisions ahead of tenor-specific par calls ahead of maturity. Dell, Denali Holding (the ultimate parent of Dell), Denali Intermediate, and certain subsidiaries will act as guarantors once the merger is closed, and today’s issuing entities will be assumed by Dell and EMC.

Proceeds of the offering will be placed in escrow and pledged as security for holders of the secured debt pending the merger close. Public registration rights will run from five years from the closing of the merger. Bookrunners are BAML, Barclays, Citi, Credit Suisse, Goldman Sachs, and J.P. Morgan.

Away from today’s senior secured offering, Dell garnered BBB– ratings from S&P Global Ratings for a proposed senior secured revolver ($3.15 billion), an A-2 term loan ($3.925 billion), an A-3 term loan ($3.5 billion), and a B term loan ($8 billion), though sizing is subject to final determinations.

Dell’s proposed senior secured A-1 term loan ($3.7 billion) was assigned a BBB issue-level rating by S&P Global Ratings. The proposed $3.25 billion of senior unsecured debt was assigned a BB issue-level rating, and a 5 recovery rating, relative to recovery ratings of 2 for the senior secured notes and 1 for the A-1 term loan.

Financing of the EMC buy was initially structured across $49.5 billion debt financing from Credit Suisse, J.P. Morgan, Bank of America Merrill Lynch, Barclays, Citi, Goldman Sachs, Deutsche Bank, and RBC Capital Markets, and included the proposed senior secured debt, term loans, a revolver, bridged senior unsecured notes, a 364-day senior secured term cash-flow facility, a margin bridge facility, and a VMware note bridge facility.

Dell is planning to acquire EMC, while maintaining VMware as a publicly traded company. EMC shareholders will receive $24.05 per share in cash in addition to tracking stock linked to a portion of EMC’s economic interest in the VMware business. Based on the estimated number of EMC shares outstanding at the close of the transaction, EMC shareholders are expected to receive roughly 0.111 shares of new tracking stock for each EMC share.

The combination of Dell and EMC would create the world’s largest privately controlled technology company, according to Dell. (Dell and related stockholders will own roughly 70% of the company’s common equity, which is similar to their ownership share prior to the transaction.) Dell said that it intends to focus on delevering in the first 18–24 months following the closing of the transaction and to maintain its investment-grade debt ratings.

Moody’s and Fitch have the respective Ba2/BB ratings on Dell under review for possible upgrade, and Moody’s last week said it expected to land Dell’s corporate family rating at Ba1.

S&P Global Ratings last week affirmed the BB+ corporate credit rating on Dell. “The stable rating outlook on Dell reflects our expectation that the company will be able to successfully integrate its acquisition of EMC, maintain market leadership in its product categories, and achieve identified cost savings,” S&P Global Ratings stated. “These factors should lead to pro forma adjusted leverage declining to the low-to-mid-3x area, from 4x at transaction close within 12–18 months.”

Fitch last week noted that it expects Dell will use $4–5 billion of combined annual free cash flow and net proceeds from a planned $3.1 billion sale of Dell Services to NTT Data for debt reduction. — Staff reports

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Volvo Car Prices €500M Bond Offering to Yield 3.25%

Volvo Car today placed notes via global coordinators Barclays and HSBC (B&D). The notes came at the tight end of guidance. Proceeds from its debut offering are for general corporate purposes. Pricing was accelerated to today with it originally due to roadshow through tomorrow. Headquartered in Gothenburg, Sweden, Volvo Car designs, develops, manufactures, markets, and sells a range of premium cars. Terms:

Issuer Volvo Car
Ratings BB/Ba3
Amount €500 million
Issue Unsecured
Coupon 3.25%
Price 100
Yield 3.25%
Spread B+363.4
Maturity May 18, 2021
Call nc-life
Trade May 11, 2016
Settle May 18, 2016  (T+5)
GloCo Barc, HSBC (B&D)
Jt Books ING, Nordea, SG CIB, Swedbank
Px talk 3.375% area


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This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


Europe: Corporate Downgrades Top Upgrades in 1Q16, thanks to Oil & Gas (of course)

european downgrades v upgrades

There were 46 corporate downgrades of European debt during 2016’s first quarter, compared to only 24 upgrades, according to S&P Global Market Intelligence. The main driver of the ratings activity will come as no surprise: commodities – specifically oil & gas – continued to struggle during the quarter.

The full analysis is available to S&P Global Credit Portal subscribers here. It also details 1Q 2016 Corporate Ratings Stats, sovereign ratings actions, ratings bias distribution, and a full list of 1Q ratings actions.