Fitch Ratings downgraded its rating on Dell Inc. (DELL) two
notches further into junk territory, citing expectations the
computer giant's shareholders will approve a leveraged buyout at a
special meeting later this week.
Fitch cut Dell's rating to double-B-minus, three levels into
junk territory, from double-B-plus. The firm also removed Dell's
ratings from watch for a downgrade, where it was placed in February
following the company's announcement of a buyout by founder Michael
Dell and private equity firm Silver Lake. Dell now has been
assigned a stable outlook.
Despite total leverage at the higher end of Fitch's prior range,
Dell's new rating is supported by Fitch's belief that Dell will
aggressive de-lever with free cash flow. The ratings agency also
thinks recent profitability pressures will be mitigated by
substantial cost savings, initial returns on significant prior
long-term investments that have weighed on margins and a moderation
in the highly aggressive pricing environment for industry standard
servers.
Fitch noted its credit concerns center on the low-margin
personal computer business accounting for about one-third of Dell's
operating profit in the first half of the year, continued
aggressive PC pricing, potential hardware revenue pressures from
aggressive cloud adoption by the U.S. government and limited
financial flexibility.
Dell shareholders on Thursday will vote on a $24.8 billion
buyout offer from Mr. Dell and Silver Lake that would take the
computer company private for $13.75 a share plus a special
dividend.
Dell, once the world's largest personal-computer maker, has
largely been sidelined as tablets and smartphones became the more
popular devices and PC sales shrank. In recent years, the company
has looked to move beyond its core PC business and expand into more
lucrative and high-margin businesses. To offset the slumping PC
business, Dell has been on an acquisition binge, adding a variety
of software, storage and networking tools.
Last month, Dell reported its fiscal second-quarter earnings
declined 72% as it recorded flat revenue and an increase in
operating expenses. The quarter marked Dell's seventh period of
year-over-year profit declines. However, results beat Wall Street
expectations.
Dell shares closed at $13.85 and were unchanged after hours.
Through the close, the stock is up 37% since the start of the
year.
Write to Nathalie Tadena at nathalie.tadena@wsj.com
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