NEW YORK, Feb 5 (Reuters) - The first US$10bn chunk of pro-rata loans in a US$45bn financing package backing computer giant Dell's purchase of data storage products maker EMC Corp is testing banks' appetite for funded US dollar assets before tapping the institutional loan and high-yield bond markets.
Sinking oil prices, an equity sell-off and increased dollar funding costs, which are making it more expensive for some banks to lend, could make Dell's pro-rata loans a tougher than expected sale for what will become the world's largest privately held technology company.
"Am I worried?" said a banker close to the transaction. "Of course, I'm worried."
Dell's US$10bn pro-rata loans, which are being offered mainly to banks, include a US$3.5bn three-year term loan, a US$3.5bn five-year term loan and a US$3bn five-year revolving credit facility.
The loan package also includes a US$8bn seven-year Term Loan B that will be sold to institutional investors and US$25bn of high-yield bonds, both of which will come to the market before the acquisition is scheduled to close in August.
While volatile markets could still make the pro-rata loans a tough sell, a wide cap on the high-yield bonds could help Dell and its banks to tap the market when they find a window to issue.
"It's the largest bridge cap I've ever seen in the US market," a second banker involved in the deal said.
The sheer size of the pro-rata loans is expected to make the deal challenging. Dell is the second-largest pro-rata financing to date behind a US$13.9bn pro-rata package from July 2015 that backed Canada Pension Plan Investment Board's acquisition of Antares Capital from General Electric Capital Corp.
"Is this a big term loan? Absolutely," a third banker looking at the deal said. "Is it going to be problematic? That's TBD."
The technology space is not perceived as attractive to lend to as the cable and healthcare sectors, for instance, and heavy issuance last year potentially raises concentration issues.
Bankers seeking to boost demand priced the revolving credit facility at 37.5bp undrawn and 200bp over Libor drawn, while the three-year term loan pays 200bp over Libor and the five-year pays 225bp over Libor.
"It's priced to sell," the third banker said.
The JP Morgan-led loans launched to bank investors in New York on January 27 at a meeting that was attended by around 150 banks, the third banker said. Banks have until February 10 to commit to the deal.
Other underwriting banks are Barclays, Bank of America Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and RBC Capital Markets.
Even if the deal takes longer to sell, Dell's strong enterprise-oriented business model, the credit quality of the name (expected corporate ratings Ba1/BB+, expected debt ratings Baa3/BBB), and a focus on paying down debt are expected to encourage banks to absorb the pro-rata loans.
Additional reporting by Karen Schwartz and Rob Smith. Editing By Tessa Walsh and Jon Methven