Dell Inc., which has $6 billion of debt due before 2016, is being treated like a junk-rated borrower as its cash falls to the lowest level in a decade with customers favoring tablets and smartphones over personal computers.
Credit-default swaps tied to the fourth-largest PC maker are trading at levels that imply Dell should be rated Ba1, or six levels below its current grade, according to Moody’s Corp.’s capital markets research group. Moody’s Investors Service has Dell at A2, while Standard & Poor’s puts it one level lower at A-.
The credit-default swaps, which pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, indicate the market sees Dell as a Ba1 credit, or one level below investment grade, Moody’s Corp. data show.
“The flurry of acquisitions has not pummeled the balance sheet,” Dave Novosel, an analyst at Chicago-based bond researcher Gimme Credit LLC, wrote in an Aug. 23 note titled “Remember When PCs Were Sexy.” “While revenue growth is likely to remain sluggish at best, we do believe margins will begin to increase.”