Hewlett-Packard sees strong demand for new bond
REUTERS: Hewlett-Packard (HP) appeared to be getting strong demand Thursday for its first bond offering in almost two years, in another sign of the market’s belief in the turnaround plan at the US computer giant.
The US $ 2 billion bond deal will put a dent in the US $ 5.5 billion of debt that Hewlett-Packard has coming due this year at a time when CEO Meg Whitman’s turnaround plan has helped restore stability and the decline in the PC market is expected to slow.
HP has made significant improvements in its credit fundamentals, including a decline in its net operating debt to zero in the past year - helping to restore investor confidence.
“We think HPQ still faces a difficult turnaround, but challenges, including PC market dynamics, appear to be easing and should reduce tail risk of a break-up or significant M&A,” said Danish Agboatwala, senior TMT credit strategist at Barclays.
The company launched the twotranche bond at the tight end of guidance, reflecting solid demand for the five-year fixed and floating-rate transaction.
“People are so geared up for this deal that I have no doubt there will be a food fight to get allocations,” said a credit strategist not involved in the trade.
The US $ 1.25 billion fixed piece launched at 102 basis points over Treasuries, while the US $ 750 million floater was launched at 3mL+94bp.
Bank of America Merrill Lynch, BNP Paribas, Royal Bank of Scotland and Wells Fargo are the lead managers on the deal, which was first marketed at initial price thoughts of 115-120bp earlier in the day.
Guidance tightened from there to T+105 area (+/-3bp).HP shares were trading at US $ 27.76 around midday on Thursday, up from roughly US $ 21 just three months ago. Its spreads have already tightened dramatically, with some syndicate bankers having seen its 10-year notes in the mid200s about three months ago.
To draw in investors to the trade, which is expected to price later in the day, the company started out offering generous new issue concessions.