A lender meeting was held today in New York City. Michael Dell was on the agenda to discuss the company.
The new deal will include a $1.5 billion, five-year term loan C and a $4 billion, 6.5-year term loan B. The term loans are expected to be covenant-lite.
The term loan C is guided at LIB+275-300, with a 1 percent Libor floor and a 99.5 original issue discount. The term loan B is guided at LIB+375, with a 1 percent Libor floor at 99.
The debt financing package also will include a $2 billion, five-year asset-based revolving credit facility, $2 billion in first-lien seven-year secured notes and $1.25 billion in second-lien eight-year secured notes.
About $750 million of the ABL facility is expected to be drawn at the close of the transaction.
Bank of America Merrill Lynch, RBC, Barclays, Credit Suisse and UBS are lead arrangers on the term loans and the ABL revolver. Term loan commitments are due September 23, and closing and funding is expected in late October.
The high yield notes are scheduled to launch September 16.
Dell joins a wave of event-driven transactions in market that have increased mergers and acquisition and leveraged buyout loans to nearly 60 percent of the forward institutional leveraged loan calendar, according to LPC. This compares to a roughly 25 percent proportion for 2012, and 19 percent for year to date.
"It certainly feels like the inevitable pick up in large M&A deals is upon us," said one leveraged loan investor. "At least that is what everyone is hoping."
Dell's $5.5 billion issuance is the second-largest institutional LBO loan this year, behind Heinz's $9.5 billion institutional issuance backing Heinz's $28 billion buyout by Berkshire Hathaway and 3G Capital.
On August 2, a special committee of the Dell board announced a revised roughly $25 billion definitive merger agreement that increased the aggregate value to unaffiliated shareholders by at least $350 million, by increasing the purchase price by $0.10 to $13.75 per share and providing certain dividend payouts. A vote on the buyout, held under the revised standard, has been scheduled for September 12.
In addition to the new debt, approximately $3.4 billion in rolled equity from Michael Dell and certain related parties, and about $2.2 billion of new cash equity consisting of $1.4 billion from Silver Lake, $500 million from Michael Dell, and $250 million from MSD Capital, will finance the transaction.
MSD Capital is an investment firm created to manage the capital of Michael Dell and his family.
The financing package also will include an up to $2 billion 7.25 percent 10-year subordinated note issuance from Microsoft, and roughly $7.7 billion in existing cash on Dell's balance sheet. The Microsoft note could be reduced by up to $500 million at closing, and up to 3.5 percent of annual interest may be paid as PIK (payable-in-kind), sources note.
The company will repay $1.4 billion in existing debt excluding structured financing, including its $500 million 1.4 percent senior notes due September 2013, its $500 million 5.625 percent senior notes due April 2014, and its $400 million 2.1 percent senior notes due April 2014, sources said.
Adjusted leverage, pro forma for the transaction, is 3.9 times on a gross basis, and 2.3 times on a net of cash basis based on its last 12 months adjusted Ebitda, sources said.
With the transaction, Michael Dell and related stockholders including MSD Capital will own 74.9 percent of Dell's common equity. - Reuters