S&P lowers Dell credit rating to junk

S&P cuts main Dell credit rating to junk, cites PC sales slump, buyout possibility

Associated Press

NEW YORK (AP) -- Standard & Poor's Ratings Services on Wednesday lowered Dell Inc.'s corporate credit rating to "BB-" from "BBB," dropping it out of investment grade, citing the continued effects of the slump in PC demand and the possibility that the company could soon go private.

The Round Rock, Texas, computer company's ratings are no longer under review for possible downgrade and the ratings outlook is stable, S&P said.

S&P credit analyst Martha Toll-Reed said Dell faces greater risks as a result of continued pricing pressures and PC sales volume declines. In addition, the proposed buyout of the company by its founder would significantly increase its leverage, she said.

Dell shareholders are set to vote Thursday on the $24.8 billion deal that would allow Michael Dell to take the company private.

Like other PC makers, Dell has struggled in recent years amid the continued consumer shift toward tablets and other mobile devices and away from traditional desktops and laptops. Michael Dell has said he can fix the company, but that it will take time and that it would best be done away from the spotlight of Wall Street.

S&P said it expects Dell will use some of its cash to continue to pay down debt, including about $2 billion in debt once the buyout closes. In addition, ongoing cost cuts and restructuring efforts should largely offset pricing pressures.

Dell shares rose 1 cent to $13.86 in afternoon trading.

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