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Rating Action:

Moody's assigns (P)Baa3 to Dell's proposed secured notes; all other ratings remain on review for upgrade

11 May 2016

New York, May 11, 2016 -- Moody's Investors Service ("Moody's") assigned provisional (P)Baa3 ratings to the proposed senior secured first lien notes of Diamond 1 Finance Corporation ("Finco 1") and co-issuer Diamond 2 Finance Corporation ("Finco 2"), which are entities that will merge into Dell International LLC (a debt issuing subsidiary of Dell Inc.) and EMC Corporation ("EMC"), respectively, upon closing of the Dell EMC merger. At transaction close, Dell International and EMC will assume all of Finco 1's and Finco 2's obligations under these notes.

All other Dell Inc. ("Dell") and Dell International ratings, including Dell's Ba2 Corporate Family Rating (CFR), remain on review for upgrade.

The net proceeds from the secured notes, along with funds to be raised from the issuance of new senior secured credit facilities and unsecured notes, will be used by Dell to help fund the acquisition of EMC. Dell expects the transaction to close by the end of October 2016, subject to EMC shareholder approval, certain regulatory approvals, and SEC filing requirements in connection with the registration of a tracking stock linked to a portion of EMC's economic interest in the VMware, Inc.

RATINGS RATIONALE

The provisional rating on the proposed secured notes assumes that the CFR will be upgraded by one notch to Ba1 from Ba2 upon closing of the transaction. Following the announcement that Dell entered into a merger agreement with EMC on October 12, 2015, Moody's placed all ratings of Dell and Dell International under review for upgrade. The rating review reflects Moody's view that despite the significant increase in debt and initial leverage, Dell's overall credit profile will be enhanced with the additional scale of EMC, a merger that will create the largest private technology company in the world with projected annual revenues of more than $75 billion. Moody's believes that Dell and EMC's combined product portfolio of client, data center, and storage solutions (which includes VMware, EMC's 81% owned software virtualization subsidiary) will position Dell to compete effectively in a technology environment shifting to hybrid cloud computing platforms. While the personal computer industry will likely continue to see flat to declining unit shipment volumes over the next several quarters, Moody's anticipates low single digit market revenue growth for Dell and EMC's server and storage businesses as enterprises continue to build capacity in the data center.

A key driver for the potential upgrade of the CFR to Ba1 is Michael Dell's commitment to rapidly de-lever, which Moody's expects will be driven by net proceeds of at least $8 billion from asset divestitures, substantial cost savings and synergies totaling $2.6 billion, and Moody's projected annual free cash flow nearing $5 billion in calendar year 2017. Similar to what transpired after the leveraged buyout of Dell in 2013, Moody's believes that the company will allocate a majority of its cash flow to debt repayment. Accordingly, Moody's expects that adjusted debt to EBITDA will decrease to 4x by the end of calendar year 2017 from about 6x at transaction close.

The (P)Baa3 rating on the secured notes is one notch above the anticipated CFR upon closing of merger. The senior secured debt rating reflects the debt's position in the post-merger capital structure, which Moody's ranks above the unsecured debt as well as certain non-debt liabilities. Upon closing of the merger, the secured notes will be guaranteed by Dell Inc., the Denali holding companies, and all wholly-owned domestic subsidiaries (including EMC's wholly-owned domestic subsidiaries) except for certain unrestricted subsidiaries, including VMware. The notes will be secured, on a pari passu basis with the new senior secured credit facilities, on a first lien basis by all of the tangible and intangible assets of the issuers and guarantors as well as 65% of the voting stock of foreign subsidiaries directly owned by guarantors. The collateral will not include a pledge of the assets or equity interests of certain subsidiaries, including VMware. The proceeds from the debt issuance will be held in escrow until closing. If the deal is not completed, the Fincos will be required to redeem all of the notes at 101% of the initial issue price of the notes, plus any accrued and unpaid interest.

The rating on the secured notes assumes that Dell will have a total of at least $11.25 billion of unsecured debt in its capital structure at closing, consisting of new unsecured bonds of $3.25 billion, $5.5 billion of EMC notes, and $2.5 billion of legacy Dell notes. To the extent that the total mix of unsecured debt falls below $11.25 billion or the fundamental performance of Dell or EMC deteriorates materially, the final rating for the secured notes could be lower than the provisional rating.

Rating assigned

..Issuer(s): Diamond 1 Finance Corporation/co-issuer - Diamond 2 Finance Corporation

....Senior Secured Notes, (P)Baa3, LGD3

The principal methodology used in this rating was Diversified Technology Rating Methodology published in December 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Dell Inc. is one of the world's leading providers of personal computers, servers, and related devices.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Stephen Sohn
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns (P)Baa3 to Dell's proposed secured notes; all other ratings remain on review for upgrade
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