HP -EDS deal

Hewlett-Packard closed its $13.9 billion acquisition of Electronic Data Systems. Luckily for the cautious computer company, the environment looks fairly welcoming for investment-grade bond offerings.

Doug Read, an analyst at Thomas Weisel Partners, expects H-P to sell $10 billion of debt to finance the deal and use cash to finance the rest. H-P should end the entire process with $8.5 billion of cash on hand and a debt-to-capital ratio that will rocket up to 24% from 6%. Cathie Lesjak, H-P’s finance chief, said in a conference call with analysts in early August that H-P expects the deal to cause “substantial cash usage for Q4.” The companies won’t discuss details of the deal’s impact until they hold another call with analysts on Sept. 15.

Several big companies have been able to find investors to buy high-grade debt. In mid-August, several big companies came to market with jumbo bond offerings, including American International Group, Citigroup, Ingersoll-Rand, Entergy Louisiana, J.P. Morgan Chase and MetLife.

All of those companies, however, were looking for far less than $10 billion. AIG sold $3.25 billion, and MetLife $1.03 billion. With the exception of banks and financial institutions, few companies have tried to sell more than $2 billion in high-grade bonds. There is still, after all, a credit crunch going on. But hope springs eternal: by the time H-P is ready to finance the deal in the next quarter, the outlook may improve.