Moody’s drops EMC notes to junk

Moody's Investors Service said it downgraded EMC Corp.’s senior unsecured notes to Ba2 from A1 following the acquisition of EMC by a subsidiary of Dell Inc. (Ba1 corporate family rating).

This concludes a review initiated Oct. 12, 2015.

Moody’s said the Ba2 rating reflects the subordination of EMC bonds to newly raised acquisition debt ($33 billion secured and $3.25 billion unsecured).

Although the EMC unsecured bonds do not benefit from a guarantee while Dell's unsecured notes are supported by a guarantee from Dell, the Denali holding companies, and all wholly-owned domestic subsidiaries (including EMC's wholly-owned domestic subsidiaries) except for certain unrestricted subsidiaries, both classes of unsecured debt are rated the same at Ba2, the agency added.

While Moody's ranks the new unsecured debt ahead of the legacy notes (i.e., the pre-LBO senior unsecured notes held at Dell and the existing EMC unsecured notes that will be rolled over as part of the deal) in a default scenario due to the guarantees, the differential in expected loss rates are not sufficient to create a notching difference in instrument ratings.

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