Dude, You’re Getting … Junk?

What’s happening with Dell?

Last week Dell concluded its leveraged buy-out. The company issued $20 billion in debt and bought back all its outstanding shares. The $13 billion or so in existing Dell debt was downgraded to junk-status, jumping about 3% in yield and falling in price. So you could say that Michael Dell extracted around $1.5 billion in value from existing debtholders to help finance the LBO.

But even thought the bonds are now B-rated, Dell is still a going concern, with a diversified global brand and over 100 thousand employees. The company’s revenues have been stable through the recent recession up through last year, and its cashflow and margins have been solid. Indeed, should Dell deliver on its business plan, the company could regain its investment-grade rating in as little as two years.

Still, the world is an uncertain place, and PC sales still comprise 20% of Dell’s global revenues. The “Bring Your Own Device” paradigm has upended markets. To sell computers to businesses, PC-makers need to be successful selling to consumers. That’s why Dell is trying to grow its tablet line. Tablets are a fragmented, volatile market, and a seamless tablet-PC hybrid has yet to be made.

If Michael Dell can pull this off, he’ll have saved the company. But this bumpy ride isn’t what the bondholders signed up for.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-11-08T11:58:48+00:00 November 8th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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