HP Plans $5 Billion Bond Sale to Pay for Autonomy Purchase

(Updates with size of offering in first paragraph.)

Sept. 13 (Bloomberg) -- Hewlett-Packard Co. plans to tap the corporate bond market with yields hovering at about record lows to help pay for the proposed acquisition of Autonomy Corp. The company is selling $5 billion, Fitch Ratings said in a report today.

The world's largest maker of personal computers may sell the debt in five parts with maturities from three to 30 years as soon as today, according to a person with knowledge of the transaction who declined to be identified because terms aren't set. The Palo Alto-based company extended a deadline for search- software company Autonomy's shareholders to agree to the sale, Hewlett-Packard said today in a regulatory filing.

Sales of corporate bonds are rebounding, after falling in August to the lowest since May 2010, as investors gain confidence that companies can survive a slowing U.S. economy and Europe's sovereign debt crisis. Yields on investment-grade corporate debt averaged 3.7 percent yesterday and touched 3.45 percent, the lowest in data extending to October 1986, on Aug. 4, according to the Bank of America Merrill Lynch U.S. Corporate Master Index.

Hewlett-Packard last sold bonds on May 25, when it issued $5 billion of notes in its largest-ever debt offering, according to data compiled by Bloomberg. The company is marketing the securities after the cost to protect its bonds from losses surged to the highest on record.

Credit Swaps

Five-year credit-default swaps tied to the company's debt jumped about 38 basis points this month to 139.8 basis points, according to data provider CMA in London, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The contracts have surged from 29 basis points in December.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The company plans to offer three-year floating-rate securities that pay about 155 basis points more than the three- month London interbank offered rate, the person said.

The PC maker may also sell fixed-rate notes due in three- and-a-half years that yield 200 basis points more than similar maturity Treasuries, five-year debt that pays a 215 basis-point spread, 10-year notes priced to yield 240 basis points more than the benchmark and 30-year bonds that pay a spread of 270 basis points, the person said. A basis point is 0.01 percentage point.

Barclays Plc, Bank of America Corp. and Citigroup Inc. are managing today's offering, the person said.

--Editors: Pierre Paulden, Mitchell Martin

via sfgate.com