Dell seeks to buy back $1 billion of debt to brace its ratings

(Bloomberg) --Dell Technologies Inc. is looking to buy back notes as the company aims to reduce debt and maintain its investment-grade rating as it continues to whittle away its highly leveraged acquisition of EMC Corp. in 2016.

The PC maker plans to repurchase as much as $1 billion of senior notes maturing between May 2024 and May 2027, according to a statement Thursday. It will pay for the buyback with proceeds raised in a January bond sale, according to a representative for the company.

There is an early tender premium of $50 attached to all of the securities, for each $1,000 in principal, according to the statement. Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co. will manage the offers. 

US corporate debt borrowers have been scrambling to pay down their debt loads and interest costs after more than a year of interest-rate hikes by the Federal Reserve to curb inflation caused borrowing costs to soar.

Interest costs at US companies rose by 22% in the first quarter compared to a year earlier, soon after the Fed started raising rates, according to a recent survey of about 1,700 businesses by data provider Calcbench Inc.

The US central bank left rates unchanged at its meeting on Wednesday but signaled that it's determining how much more hiking it will undertake. The Fed's forecasts show borrowing costs rising to 5.6% by the end of 2023, compared with the previous projections of 5.1%.

Read More: US Companies Scrambling to Cope With Surging Interest Rate Costs

Dell's 2016 acquisition EMC helped the computer maker expand its business from personal computers but saddled it with a heavy debt load. 

"Dell's steadfast commitment to investment-grade ratings and reaching its 1.5x long-term leverage target remains a priority, highlighted by its decision to tender for $1 billion of short-dated bonds despite a stock price that remains unchanged over the past year," Bloomberg Intelligence credit analyst Robert Schiffman wrote in a Thursday note. 

Dell has reduced its core debt by more than $30 billion since its acquisition of EMC and the VMware spinoff, Schiffman wrote in a separate note.

This tender offer marks "very tail-end of the deleveraging process," since Dell's 2016 acquisition of EMC, Schiffman said in a brief phone call. 

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