Fitch might cut Hewlett-Packard

Fitch Ratings said it placed the ratings of Hewlett-Packard Co. and its wholly owned subsidiary Electronic Data Systems LLC on Rating Watch Negative.

The placement follows Hewlett-Packard’s announced separation into two companies, consisting of HP Enterprise and HP Inc. The tax-free spin-off to shareholders is expected to be completed by the end of fiscal year 2015 (Oct. 31).

The actions affect roughly $26.6 billion of total debt, including the company's undrawn $7.5 billion unsecured revolving credit facilities.

Fitch said the Rating Watch Negative reflects the loss of business diversity, anticipated greater financial performance volatility at HP Enterprise due to lower recurring revenue, risk of dis-synergies, particularly procurement, uncertainty regarding the ultimate liquidity profile and capital structure for HP Inc. and HP Enterprise.

The Negative Watch also reflects minimal strategic rationale for HP Inc. to maintain a strong investment grade rating and greater risk of debt-financed acquisitions at HP Enterprise given the loss of considerable free cash flow generated by HP Inc.

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