American computer maker Dell Technologies Inc announced on Wednesday that it will be spinning-off its stake in cloud computing company VMware in a bid to raise cash to pare down debt. As part of the transaction, VMware will pay a special dividend of $11.5-12bn to shareholders with Dell expected to receive $9.3-9.7bn given its 81% stake in the company. Dell plans to use the cash to trim its long-term debt, which currently stands at $41.62bn, majority of which was incurred during its acquisition of EMC in 2016. The transaction could push Dell’s credit rating, currently at BB+/BB+, into investment grade territory as S&P and Fitch placed Dell’s credit rating on Watch Positive. S&P said that the rating action reflects at least a 50%chance of an upgrade to BBB- as the spinoff is expected to lower its adjusted leverage below its upgrade trigger of mid-2x.
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