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Yield-starved investors piled into a bond sale from Dell on Tuesday as the US computer group raced to complete the fourth-largest bond sale on record.

The sale, which has been closely watched since Dell announced its $63bn takeover of EMC last year, drew sizeable investor demand as order books closed, allowing bankers leading the transaction to increase the size of the deal by $4bn to $20bn, two people familiar with the matter said.

Underwriters counted roughly $85bn of investor orders for the transaction, rivalling the $110bn stumped up for the Anheuser-Busch InBev mega sale earlier this year.

The strong demand, which included at least $20bn of orders from investors in Asia and Europe, underscored the enthusiasm with which fund managers are willing to bid on corporate bonds as yields on other asset classes tumble.

“The market is starved for yield and is willing to entertain this deal with Dell and EMC,” said Matthew Brill, a portfolio manager with Invesco. “We continue to see international inflows with global yields negative in so many places.”

Investors have poured more than $76bn into US investment-grade bond funds since 2015, including roughly $25bn in the past five months, according to EPFR.

The transaction will rank behind Verizon’s $49bn debt sale in 2013, as well as the $46bn offering from AB InBev and a $21bn issuance from Actavis, Dealogic data show.

The sale included notes maturing in three, five, seven, 10, 20 and 30 years and precedes a sale of about $4bn of junk-rated notes as soon as next week. The Texas-based PC maker ultimately dropped two proposed floating rate tenors and tightened pricing on its fixed-rate notes by as much as 75 basis points as order books were finalised.

Dell, which received nearly $50bn of funding commitments from banks to finance its purchase of EMC, structured the transaction to win investment-grade ratings from the three main credit rating agencies, despite the company carrying an overall junk status.

The $20bn of debt has been secured by some of Dell’s assets and has been ranked above other bonds in the company’s capital structure. The group also agreed to asset sales to reduce its leverage, enticing buyers from both the high-grade and high-yield world.

Analysts with rating agency Fitch said that they expected Dell to use between $4bn and $5bn of cash generated each year to pay down its debt, which the group estimated at $50bn when the takeover of EMC is completed.

The computer maker was nonetheless forced to pay up to issue its longest dated bonds, with the yield on the 30-year paper priced at 8.36 per cent, more than the 8 per cent yield secured by Argentina when it sold similar dated paper in April.

Ten-year notes priced with a yield of 6.03 per cent, 425bp above the benchmark Treasury. The significant spread, above the average 270bp premium paid by triple-B rated groups selling similar dated bonds, highlighted the risks that investors said were apparent in Dell’s business model.

“The yield curve is telling the story here,” Mr Brill added. “Investors are comfortable with the near-term market for Dell but sceptical of the long-term. Investors need to get paid to take on this long-term execution risk.”

The secular decline of the computer market has weighed on many hardware manufacturers. PC shipments tumbled 10 per cent in 2015, sliding below 300m units for the first time since 2008, figures from IDC showed.

Other technology groups have been met with investor reluctance and apprehension when selling debt. Western Digital downsized its sale of junk-rated bonds in March, shifting more of its financing to the investment-grade market.

The sale by Dell on Tuesday will lift US corporate bond issuance in 2016 above the $400bn mark, roughly on par with offerings in 2014 but below the bumper pace recorded last year.


Twitter: @ericgplatt

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