Without realizing it, defined benefit and defined contribution plans could be betting on a Dell Inc. turnaround.
Should the proposed management buyout go through, there could be more than $24 billion in Dell bonds outstanding, between existing issues and new debt from the buyout. Depending on the ultimate terms and price of the debt and loan offerings, investors could find Dell instruments scattered throughout their fixed-income, hedge fund and alternative investment portfolios.
On Feb. 5, founder and CEO Michael Dell and private equity firm Silver Lake Partners announced they were leading a management buyout of the computer company for about $24.4 billion.
As a so-called “benchmark name,” investors — including mutual funds and exchange-traded funds as well as institutional investors through traditional separate accounts and index funds — would have to have exposure to the debt and loans, sources said.
Dell's new and old debt could amount to about 20 basis points of the $1.2 trillion market capitalization of the Barclays U.S. Corporate High Yield index, which is big enough to have an impact on managers' investment decisions.
“Assuming this deal happens, defined benefit plans and defined contribution accounts will probably still own Dell securities (as a private company) if they invest in bank loan or high-yield bond investment vehicles,” said David Fann, president and CEO of San Diego-based consulting firm TorreyCove Capital Partners LLC.
But, under the current proposed debt structure, which is not typical for leveraged buyouts, Dell debt and loans could show up in investment-grade portfolios as well, sources said.
The amount of debt would be “big enough to be noticeable,” by managers and investors, said Michael Rosen, chief investment officer of Santa Monica, Calif.-based consulting firm Angeles Investment Advisors LLC. It could be enough for money managers to have to make a decision if they want to be overweight or underweight, he said.
There will be a lot of interest in new Dell bonds and loans, Mr. Rosen predicted. “We're in a market where there's insatiable thirst for high-yielding paper,” he said, because of the low-yield environment.