Dell Inc. (DELL) recently entered into an agreement with BNP Paribas, Deutsche Bank AG (DB), UBS AG (UBS) and Wells Fargo Securities (WFC), for issuance of bonds worth $1.5 billion, in four parts. The bankers will act as administrative agents for the purpose.
The first part constitutes a 3-year non-callable senior unsecured note of $300.0 million, carrying a coupon rate of LIBOR (London Interbank Offered Rate) plus 60 basis points. The second part constitutes a 3-year senior unsecured note of $400.0 million, carrying a coupon rate of 2.10%.
The third part represents a $400.0 million senior unsecured note payable after 5 years, with a coupon rate of 3.10%. The fourth part constitutes a 10-year senior unsecured note of $400.0 million, carrying a coupon rate of 4.625%.
Dell is exploring new avenues for growth through major expansion activities and focus on cloud computing. The fresh debt will finance Dell’s expansion plans and can also be used for general corporate purposes, including working capital, acquisitions, capital expenditures, funding of customer receivables and share repurchases.
In the recently concluded fourth quarter of fiscal 2011, total debt (long term plus short term) of the company stood at roughly $6.0 billion, roughly flat from the previous quarter. Debt-to-capitalization ratio in the quarter was 43.6%, a slight improvement over 46.8% reported in the prior quarter.
Dell currently has a two-part senior unsecured revolving credit facility of $2.0 billion for supporting its commercial paper program. Dell does not expect to renew or replace the $1 billion expiring this year, but will raise at least another $1 billion before the second part expires next year.
Dell exited the quarter with $14.4 billion in cash and cash equivalents and short term investments, up from $13.4 billion reported in the previous quarter. The company’s net cash balance (cash less debt including current portion) was $8.4 billion, compared with $7.4 billion in the prior quarter, a significant improvement.
We remain encouraged by Dell’s strong cash position as it will be able to weather the financial expenses related with long term debt.
Currently, Dell has a Zacks #1 Rank, which equates to a short-term Strong Buy recommendation.
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