Will H-P Issue Entice Buyers?

By KELLIE GERESSY Computer giant Hewlett-Packard is taking advantage of improved borrowing conditions in the investment-grade market to sell new debt. H-P's $2.775 billion three-part offering priced Monday via active bookrunners Bank of America, Deutsche Bank and Royal Bank of Scotland Group. While H-P will enjoy the spoils of a better issuing environment, lower interest rates may not guarantee an easy sell to investors, who have remained picky and who are buying securities on a case-by-case basis. H-P sold $2 billion of five-year notes in December, and market participants thought the company would be able to sell the new notes at a much better price. Launch levels were better than preliminary price guidance, suggesting good demand for the bonds. The first, $275 million part has a maturity of Feb. 24, 2011, with a coupon of the three-month London interbank offered rate plus 1.75 percentage points. It priced at par, with a yield of three-month Libor plus 1.75 percentage points. The second, $1 billion part has a maturity of Feb. 24, 2012, with a coupon of 4.25%. It priced at 99.956, with a yield of 4.266%. The spread is 2.95 percentage points above Treasurys. The third, $1.5 billion part has a maturity of June 2, 2014, with a coupon of 4.75%. It priced at par, with a yield of 4.753%. The spread is 2.95 percentage points over Treasurys. H-P sold $2 billion of five-year notes on Dec. 2 of last year that offered a 4.6 percentage point risk premium above Treasurys -- about the average for a single-A rated company at that time when investors were still thin-skinned about investing in any securities not carrying a government guarantee. That issue traded at a risk premium of 2.45 percentage points above Treasurys late last week. But despite a boost in corporate-bond supply against an improved issuing backdrop, H-P may have to entice bond buyers with the offer of a larger concession on its bonds to mitigate integration risk perceived by potential investors. H-P raised eyebrows last year when it announced its $13.9 billion acquisition of Electronic Data Systems and the company is still working through a series of challenges in a crippled economy. Partial proceeds from the sale will be used to fund repayment of the company's outstanding commercial paper, according to the offering's prospectus. The offerings were rated A2 by Moody's Investors Service and single-A by Standard & Poor's Ratings Services. An H-P representative said the company had no comment on the offering.