Hewlett Packard Enterprise to tap bond market, use loans to finance $14 billion Juniper deal

By Ciara Linnane

Company has launched a seven-part bond deal with fixed and floating-rate notes

Hewlett Packard Enterprise Co. announced a series of moves Thursday to raise the financing for its $14 billion acquisition of Juniper Networks Inc., including term loans and a seven-part bond deal.

The cloud-services company (HPE) will offer two-year fixed and floating-rate notes, three-year fixed-rate notes, five-year fixed-rate notes, seven-year fixed-rate notes, 10-year fixed-rate notes, and 30-year fixed-rate notes, according to a statement.

The bond offering is expected to raise $6.5 billion, according to ratings agencies, with Citigroup, JPMorgan and Mizuho acting as underwriters. Most of that will be used to finance the Jupiter deal although the company is also planning to pay debt due later this year.

The company issued about $1.5 billion in mandatorily convertible preferred shares earlier this week and will use a $3 billion three-year term loan and apply about $2 billion in net proceeds from selling 30% of digital infrastructure provider H3C, according to Fitch Ratings.

The bond deal comes with some special conditions. The five-year, seven-year, 10-year and 30-year bonds come with a mandatory redemption at 101 cents on the dollar, in the event that the deal does not close as expected later this year or early next year.

The mandatory redemption does not apply to the floating-rate notes, the 2026 notes and the 2028 notes. Proceeds of those offerings will be used for general corporate purposes, including repaying outstanding debt, if the deal is not consummated.

The deal is expected to perform well. Yields on the company's outstanding bonds have moved back down from their highs of the year, as investors gear up for the first interest rate cut from the Federal Reserve expected next week, as the following chart from data solutions provider BondCliQ Media Services shows.

The 6.35% notes that mature in October of 2045 have seen spreads move the most, widening by 38 basis points over the past two months.

The company has more than $10 billion of outstanding bonds, according to FactSet, with $2.5 billion coming due next year.

The company announced the acquisition of Juniper in January. Juniper makes communications-networking products and also has an AI segment called Mist AI.

The deal was driven by the accelerating AI arms race, which the company is keen to tap. The acquisition "is expected to double HPE's networking business, creating a new networking leader with a comprehensive portfolio that presents customers and partners with a compelling new choice to drive business value," the companies said at the time.

Initial price talk on the bond deal was for the two-year fixed-rate bonds to price at a yield spread of 110 basis points over Treasuries, and for the floating-rate tranche to price at the Secured Overnight Financing Rate plus equivalent, according to Informa Global Markets.

The three-year notes are expected to price at 120 basis points over Treasurys, the five-years at 140 basis points over, the seven-years at 160 over, the 10-years at 175 basis points over, and the 30-years at 205 basis points over Treasurys.

Hewlett Packard Enterprise's stock rose 2.5% Thursday but is down 4% in the week to date after the preferred stock offering. The S&P 500 SPX is up about 3% in the week to date.

-Ciara Linnane

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09-12-24 1420ET

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