HP Debt at Riskiest Level to Dell in Decade

Cost to insure Hewlett-Packard bonds rises after warning on earnings.

Hewlett-Packard Co. debt is the riskiest in a decade relative to Dell Inc. as Chief Executive Officer Meg Whitman struggles to transform the world’s largest computer maker in an age of tablets and smartphones.

The cost to insure Hewlett-Packard bonds with credit-default swaps grew to 54.9 basis points more than its largest rival on Oct. 3 after being cheaper a year ago. The gap grew 15 points as Whitman said income would be below analyst estimates and that her company lacked “competitive focus.” Moody’s Investors Service said yesterday it may downgrade the firm.

‘Weaker Credit’

While Hewlett-Packard retains a “pretty decent” credit profile, declining revenue, weaker margins and spending on acquisitions such as its $10.3 billion takeover of Autonomy Corp. last year have combined to push leverage higher, according to Dave Novosel of Chicago-based Gimme Credit LLC.

Servers, Storage

Dell has been more successful in adapting by focusing on areas such as selling servers and storage machines to large companies, according to Aaron Rakers, an analyst at Stifel Nicolaus & Co. It’s also less burdened by debt, with a leverage ratio of 1.75, Bloomberg data show.

Leverage Ratio

The ratings firm said in a statement yesterday that the company’s earnings outlook meant leverage could be higher than it had expected. Moody’s said in March that the rating could be lowered if Hewlett-Packard maintained an adjusted leverage ratio above 2 or if margins linked to earnings before interest and taxes dropped below 7 percent for an extended period of time. That measure fell to 6.96 percent in the third quarter, Bloomberg data show.

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