S&P lowers Dell to junk, new debt rated BB+, BB

Standard & Poor's said it downgraded the corporate credit rating on Dell Inc. to BB- from BBB, along with its commercial-paper rating to B from A-2.

The agency also said it removed all of the company's ratings from CreditWatch, where they were placed with negative implications in February 2013.

The outlook is stable.

S&P also said it lowered the ratings on Dell's senior unsecured debt to B+ from BBB and assigned a 5 recovery rating to the debt, which indicates 10% to 30% expected default recovery.

The agency also said it assigned a BB+ rating to Dell's proposed first-lien secured debt, which includes a $4 billion term loan B due 2020, $1.5 billion term loan C due 2018 and $2 billion first-lien notes due 2020. That debt was assigned a recovery rating of 1, indicating 90% to 100% expected default recovery.

S&P also assigned a BB rating to the company's proposed $1.25 billion second-lien notes due 2021 with recovery rating of 2, indicating 70% to 90% expected default recovery.

The downgrades incorporate a revision of Dell's business risk profile to fair from satisfactory, reflecting ongoing pricing pressures and volume declines in PCs, which is still Dell's largest business by revenue, S&P said.

The downgrades also consider the revision of its financial risk profile to aggressive from modest, pro forma for the significantly higher leverage resulting from the proposed leveraged buyout, Martha Toll-Reed, an S&P analyst, said in a press release.

The company's stable outlook reflects an expectation that Dell will use cash on the balance sheet and free operating cash flow to repay debt on an ongoing basis, Toll-Reed said.

The potential for higher ratings is currently constrained by Dell's aggressive financial risk profile, weak demand and profitability conditions in Dell's end user and enterprise solutions segments, Toll-Reed added.

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