HP Inc.'s 4.20% senior unsecured notes due April 2032 offer defensive carry and moderate roll-down within the BBB-rated technology hardware sector. At a current OAS of 77bps, the bonds are fairly valued to slightly tight versus the BBB Technology BVAL curve at the 10-year tenor, reflecting HP's stable fundamentals and strong liquidity rather than mispricing.
This is a defensive carry trade with upgrade optionality. Assuming 10bps of spread tightening to 67bps, total return is 5.8–6.0% over 12 months in a static-rate environment. Downside protection comes from carry (4.3%), stable BBB fundamentals, and ample liquidity. Net leverage path to ~0.99× by FY27 provides BBB-to-BBB+ upgrade optionality not priced into current OAS.
01
Strong Liquidity — Defensive Anchor
HP holds $2.9B cash and a $5B undrawn revolving credit facility with no near-term maturities. Gross leverage near 2.0× EBITDA, supported by $2.5–3.0B annual FCF. Management maintains a stated low-2× leverage ceiling, fully funding distributions from internal cash flow. This structural liquidity makes credit deterioration unlikely absent transformative and debt-funded acquisition.
02
Leverage Path Supports Upgrade Optionality
Net leverage of 1.46× is already below management's stated 2× ceiling. As Personal Systems drives recovery (AI-PC refresh, Windows 10 EoL migration, enterprise upgrades), we project net leverage falling toward ~0.99× by FY27. This trajectory creates asymmetric spread compression potential not priced into current OAS positioning.
03
Relative Value: Fair-to-Tight at 10-Year Tenor
HP's BVAL curve tracks BBB Technology and BBB Composite benchmarks through 5–9 years, trading slightly through (tighter than) the BBB Tech curve at ~10 years (≈ −8bps). Only beyond 10 years does HP's curve rise above benchmarks (~+10–15bps). At the 2032 tenor, the bond is fair-to-slightly rich — but the carry profile and credit improvement outlook support continued tight trading.
Credit Metrics Trajectory
Metric ($MM)
FY23A
FY24A
FY25E
FY26E
FY27E
Revenue
53,718
53,559
55,121
55,029
54,970
EBITDA
4,306
4,648
4,299
5,245
5,240
Free Cash Flow
2,962
3,157
1,322
4,534
2,934
Debt / EBITDA
2.34×
2.16×
2.07×
1.60×
1.41×
Net Debt / EBITDA
1.59×
1.46×
1.69×
1.10×
0.99×
Interest Coverage
8.30×
8.62×
9.09×
11.09×
11.08×
Bond Statistics
Parameter
Detail
Security
HPQ 4.20% due 04/15/2032
Price
$97.63
YTW
4.63%
OAS
77bps
Modified Duration
5.55 years
Convexity
0.36
5-Year CDS
60bps
Rating (Moody's/S&P/Fitch)
Baa2 / BBB / BBB+
Outlook
Stable / Stable / Stable
Expected Return (12M)
5.8–6.0%
Full Credit Report — HP Inc. (HPQ)
16 pages · Finance 640: Intro to Credit Trading · October 30, 2025