OREANDA-NEWS. S&P Global Ratings said today that it assigned its 'BB+' corporate credit rating to Round Rock, Texas-based Dell Technologies Inc. (Dell). The rating outlook is stable.

At the same time, we affirmed our 'BB+' corporate credit on Dell Inc. and subsequently withdrew the rating at the company's request.

Our rating on Dell reflects our view that the combined Dell and EMC Corp. entity would be one of the largest technology companies globally, with leadership positions across the PC, servers, storage, and virtualization software markets, and improved sales channels covering small to midsize businesses and large enterprises. Offsetting factors include the combined company's high pro forma adjusted leverage of about 4x; the integration risks, albeit moderate, that the business combination poses; and the weaker PC, storage and virtualization software business growth prospects due to a delayed PC refresh cycle and the enterprise businesses' ongoing transitioning of their IT infrastructure to cloud service providers from their private data centers. The rating also reflects Dell's commitment to repay debt with proceeds from noncore asset sales and free operating cash flow (FOCF) generation, such that pro forma adjusted leverage would decline from the current 4x level.

The EMC acquisition follows Dell's leveraged buyout (LBO) by its founder and CEO Michael Dell and Silver Lake Partners in October 2013 for approximately $25 billion. Dell has been successful in its deleveraging plan, with leverage of about 2x as of fiscal year ended Jan. 29, 2016, down from pro forma leverage in the 5x area at the time of the LBO transaction.

"The stable outlook indicates our expectation that Dell will be able to successfully integrate its acquisition of EMC, maintain market leadership in its product categories, and achieved identified cost savings, leading to leverage declining to the low - to mid-3x area within 12-18 months," said S&P Global Ratings' credit analyst David Tsui.

We would lower our corporate credit rating on Dell if the company's business conditions deteriorate significantly or if it encounters acquisition integration challenges, leading to materially weaker-than-expected revenue growth and profitability, and adjusted leverage exceeding 4x.

We would raise our rating on Dell by one notch to 'BBB-' if the company is able to execute its plan of achieving the targeted cost savings and repay debt, leading to leverage sustained below 3x, while committing to a financial policy that would preclude it from taking on incremental debt that would jeopardize its investment-grade ('BBB-' and above) debt ratings.