Dell Debt Cut to Junk by S&P Ahead of LBO Vote

Dell Inc., the computer maker putting a $24.9 billion buyout proposal to a shareholder vote tomorrow, had its corporate credit rating cut to junk by Standard & Poor’s.

The transaction planned by Chief Executive Officer Michael Dell and Silver Lake Management LLC would create a more leveraged capital structure and diminished free operating cash flow, hampering the company’s ability to invest in new businesses and technologies, S&P said in a statement today. S&P lowered Round Rock, Texas-based Dell’s corporate credit rating four levels to BB- from BBB with a stable outlook.

Dell, who serves as chairman and CEO, is pushing to take the personal-computer maker private so he can execute a turnaround plan outside the spotlight of public markets. The downgrade reflects an historic slump in PCs, which are still Dell’s biggest source of revenue, S&P said.

“The stable outlook incorporates our expectation that Dell will use cash balances and cash generation to reduce debt, and that ongoing cost reduction initiatives will largely offset pricing pressures across Dell’s primary business segments,” S&P said in the statement.

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