Bloomberg News

Dell Credit-Default Swaps Surge on Buyout Talks; Bonds Tumble

January 14, 2013

The cost of protecting Dell Inc. (DELL:US)’s debt from losses surged following a report that the personal- computer maker is in buyout talks with private-equity firms.

Five-year credit-default swaps on the Round Rock, Texas- based company’s debt soared 83 basis points to 286 basis points as of 5:17 p.m. in New York, according to data provider CMA. A benchmark gauge of U.S. corporate credit risk rose the most in more than two weeks.

Concern that Dell may boost its borrowing is rising as the company holds discussions about going private with private- equity firms. The talks are preliminary and could fall apart because the investors may not be able to line up the needed financing or resolve how to exit in the future, two people with knowledge of the matter told Bloomberg News.

Dell’s bonds fell to the lowest level in 19 months. Dell’s $400 million of 4.625 percent notes due April 2021 declined 6.64 cents to 102.2 cents on the dollar to yield 4.31 percent as of 4:27 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the lowest level for the debt since June 2, 2011.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, added 2.4 basis points to a mid-price of 89.6 basis points at 5:51 p.m. in New York, according to prices compiled by Bloomberg. That’s the largest increase since a 4.6 basis-point jump on Dec. 28.

The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Madhura Karnik in New York at mkarnik@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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