EMC Secures Very Favorable Credit Ratings from Ratings Agencies

S&P Ratings Services issued A ratings for its notes. These were the $2.5 billion of 1.875% notes due in 2018, the $2 billion in 2.65% notes due in 2020 and for the 3.375% notes due in 2023.

Moody’s recently assigned a rating as well ahead of the pricing at A1 with a Stable outlook. It said:

EMC’s liquidity profile is expected to remain strong, with total cash and liquid investments of $12 billion and consistent free cash flow generation. Half of EMC’s cash is maintained domestically. EMC’s dividend initiation, approximating $840 million annually represents 17% of latest twelve month consolidated discretionary cash flow (cash flow from operations less capital expenditures) and 25% after excluding the discretionary cash flow of 80% owned subsidiary VMware Inc. (NYSE: VMW).

EMC’s shelf filing with the Securities and Exchange Commission showed that it plans to use the proceeds of about $5,458,286,000 net for repayment of all the existing $1.695 billion in convertible notes that will mature on December 1, 2013. It also identified uses for stock repurchases as working capital needs and other business opportunities that fall under the “general corporate purposes.”

EMC shares have had a hard time holding on to the gains from the day the huge buyback and dividend initiation was announced. We would attest this to the market volatility more than on the valuations or fundamentals that EMC is facing. So far on Thursday morning, we see EMC shares recover 1% to $24.55, against a 52-week range of $21.45 to $28.18 and against a Thomson Reuters consensus price target of $29.24.

Before the news of dividend and buyback, EMC shares were down at $23.66. The day of the announcement was May 30, and its stock hit a high of $25.29 and closed at $24.93. Until today’s gain, we have seen EMC shares literally give back gains at the close of each of the four subsequent trading sessions.