OREANDA-NEWS. Fitch Ratings has removed the ratings for Dell Inc. and its wholly owned subsidiary, Dell International LLC (Dell International) from Rating Watch Positive and has taken various rating actions, including the upgrade of Dell Inc.'s Long-Term IDR to 'BB+' from 'BB', following the completion of the company's acquisition of EMC Corporation (EMC). A full list of ratings follows at the end of this release.

The Rating Outlook is Stable. Fitch's actions affect $53 billion of total debt, including the $3.15 billion RCF.

KEY RATING DRIVERS

Post-Merger Debt Reduction: Fitch Ratings expects Dell Inc. will use $4 billion - $5 billion of annual FCF and more than $5 billion of net proceeds from the recently announced divestitures for debt reduction. As a result, Fitch expects $13 billion - $15 billion of debt reduction and growing profitability over the 18 - 24 months post close will drive core leverage -- excluding debt and profitability associated with the financing unit -- toward 3.0x from a Fitch-estimated 6.0x at EMC Corp. acquisition closing.

Increased Scale and Diversification: EMC increases Dell's scale and diversification, including share leadership in fast-growing emerging storage markets and strong positions in high-value and mid-range legacy products. EMC increases Dell's annual revenue by 50% to roughly $75 billion and more than doubles Dell's operating EBITDA to approximately $8.5 billion (before acquisition-related synergies) from a Fitch-estimated $3.2 billion for fiscal 2016.

Still Significant PC Exposure: PC market exposure will remain significant, despite a more diversified post-combination sales mix. Excluding VMWare, Inc. and divestitures, PC revenue and operating income will be roughly half and 40%, respectively, versus nearly two-thirds and more than half on a stand-alone basis. Unit shipments should be down in the low to mid-single digits through fiscal 2017, but an aging installed base and processor refreshes should spur PC market stabilization over the intermediate term.

Credible Profit Expansion Roadmap: Fitch expects operating EBITDA growth and margin expansion from Dell's $2 billion of acquisition-related annual cost synergies, which Dell should achieve on a run-rate basis in fiscal 2018 and are incremental to Dell's and EMC's current stand-alone cost takedown programs of $550 million and $800 million, respectively. Fitch expects operating EBITDA approaching $12 billion in fiscal 2018 and up to $14 billion over the intermediate term, with operating EBITDA margins expanding to the mid-teens from low teens.

Emerging Storage Leadership: EMC's leadership in rapidly growing emerging storage (all flash arrays, converged and scale-out network attached storage and object) will offset negative double-digit growth in legacy storage, in which Dell and EMC also have strong combined share. Fitch expects stand-alone cost reductions and acquisition-related cost synergies will stabilize operating profitability over the intermediate term, despite pressured gross margin from the transition in the near term.

No Direct VMWare Support: Fitch includes EMC's 81% ownership of VMWare in operating results because Dell will consolidate VMware's $6.6 billion of revenues and $2 billion of Fitch-estimated operating EBITDA. Fitch expects mid to high single-digit revenue growth, although revenue from Dell and VMWare cross-selling could be meaningful, given limited customer overlap. Operating EBITDA margin should remain stable from ongoing cost realignments, although Fitch does not expect upstream dividends or direct support for Dell's debt.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Dell include:

--Low-single-digit organic revenue growth through the forecast period following the combination, driven by emerging storage, enterprise servers and stabilizing PC market.

--Dell and EMC achieve standalone cost reductions in fiscal 2017 and integration-related cost synergies in fiscal 2018, resulting in operating EBITDA approaching $12 billion in fiscal 2018.

--Dell closes the Dell Services and Software sale in fiscal 2017 and applies net proceeds from the transaction, as well as net proceeds from incremental asset sales, to debt reduction.

--Dell uses $4 billion to $5 billon of annual FCF to reduce debt, resulting in core leverage approaching 3x in fiscal 2019.

RATING SENSITIVITIES

A negative rating action could result from Fitch's expectations for:

--Pre-dividend FCF margin sustained below 2%, from lower than anticipated revenue; or

--Core leverage, which excludes debt and profitability associated with Dell Financial Services (DFS) above 3.5x, respectively, likely from weaker than anticipated profitability and debt reduction with cash flow.

Fitch believes positive rating actions are unlikely over the intermediate-term, in the absence of:

--Greater than expected debt reduction from FCF, resulting in total leverage sustained below 3x; and

-Stronger than anticipated revenue growth from profitable market share gains, despite challenging demand dynamics across largest end markets.

LIQUIDITY

Fitch expects Dell's liquidity will be solid and supported by:

--$7.2 billion of cash and cash equivalents, excluding cash held by VMware;

--$3.15 billion senior secured revolving credit facility (RCF), of which $1.975 billion will be drawn as of the EMC deal closing.

Fitch's expectations for $4 billion - $5 billion of annual FCF also will support liquidity.

Core debt at closing will be approximately $52 billion and consist mainly of:

Dell Inc.

--$500 million 5.65% senior unsecured notes due 2018;

--$600 million 5.875% senior unsecured notes due 2019;

--$400 million 4.625% senior unsecured notes due 2021;

--$300 million 7.1% senior unsecured notes due 2028;

--$388 million 6.5% senior unsecured notes due 2038; and

--$265 million 5.4% senior unsecured notes due 2040.

Dell International LLC

--$2.2 billion Asset Sale Bridge Facility;

--$1.975 billion of ($3.15 billion total facility) (EMC Corp. co-borrower) Senior Secured RCF;

--$9.4 billion (EMC Corp. co-borrower) of Senior Secured Term Loan A;

--$5 billion (EMC Corp. co-borrower) of Senior Secured Term Loan B;

--$19 billion (EMC Corp. co-borrower) of senior secured notes; and

--$3.3 billion (EMC Corp. co-borrower) of senior unsecured notes.

EMC Corp.

--$2.5 billion 1.875% senior unsecured EMC Corp. notes due 2018;

--$2.0 billion 2.650% senior unsecured EMC Corp. notes due 2020;

--$1.0 billion 3.375% senior unsecured EMC Corp. notes due 2023.

Fitch expects an additional $4.5 billion of debt to support Dell's financing business based on a debt-to-equity ratio of 7:1 of financing assets.

FULL LIST OF RATING ACTIONS

Dell Technologies Inc. (Formally known as Denali Holding Inc. - Dell Technologies):

--Long-Term Issuer Default Rating (IDR) rated 'BB+'.

Dell Inc. (Dell):

--Long-Term IDR upgraded to 'BB+' from 'BB';

--Existing senior unsecured notes affirmed at 'BB'; Recovery rating revised to 'RR5' from RR4'.

Dell International LLC (Dell International):

--Long-Term IDR upgraded to 'BB+' from 'BB';

--Senior Secured Revolving Credit Facility (RCF) rated 'BBB-/RR1';

--Senior Secured Term Loan A rated 'BBB-/RR1';

--Senior Secured Term Loan B affirmed at 'BBB-/RR1';

--Senior Secured Notes will be assumed from Diamond 1 Finance Corporation at closing affirmed at 'BBB-/RR1';

--Senior Unsecured Notes will be assumed from Diamond 1 Finance Corporation at closing affirmed at 'BB+'; Assigned 'RR4' recovery rating.

EMC Corporation (EMC):

--Long-Term IDR rated 'BB+';

--Existing Senior Unsecured Notes rated 'BB/RR5';

--Senior Secured Notes will be assumed from Diamond 2 Finance Corporation at closing affirmed at 'BBB-/RR1';

--Senior Unsecured Notes will be assumed from Diamond 2 Finance Corporation at closing affirmed at 'BB+'; Assigned 'RR4' recovery rating.

The Rating Outlook is Stable.