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so last night i spoke with a trader that i highly regard. he has a pretty heavy long equity position in DELL (>6 figures) and believes the private buyback/merger is going to happen.

but i almost fell out of my chair when he responded to my question as to if he bought puts or how he had hedged himself? incredibly, he hedged the trade by shorting some DELL bonds.

sure enough i brought up a bunch of DELL corps [[ in particular, the 2012s, 2028s, 2038s, 2040s and low and behold to my astonishment, they are all trading way under par. its been a little bit since i have looked at these DELL corps, but in the past they were trading at huge premiums to par being A rated.

so the bonds have been very recently tanking and as you know i always say, follow the lead of the whale size debt traders as they usually can be pretty insightful on a move like this.

there still might be room here on the equity side to put a trade on with DELL stock still in the $12's. i have further DD to do..........
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Dell Bonds Turn ‘Toxic’ on Leveraged Buyout Rumors

“In order for Dell to go private, they’d have to issue debt and buy back stock. Leverage ratios would go through the roof,” “What always happens [in an LBO] is the stock skyrockets and the bonds plummet, and that’s exactly what’s happening today.”

The tumble in Dell bonds “highlights the importance of buying bonds with very good covenant protection,”says Scott Kimball, portfolio manager at the BMO TCH Corporate Income Fund. The Dell bonds lack any “change of control” provision whereby investors can sell the bonds back to the company at or around par in case of a buyout. Kimball says those protections are increasingly important because “the longer interest rates stay low, the more of this activity we will see.”
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