Xerox bank debt rallies on better-than-expected third quarter earnings

By Sara Rosenberg

New York, Oct. 23 - Xerox Corp.'s bank debt jumped up anywhere from one to three points, depending on the tranche, following the announcement that third quarter earnings beat analyst estimates by 3 cents per share.

The revolver was quoted up by about two to three points at 75½ bid, 76½ offered, the term loan A was quoted up by about two to three points at 87 bid, 88 offered and the term loan B was quoted up by about one point at 95¼ bid, 96¼ offered, the trader said.

The Stamford, Conn. document company reported third quarter earnings of 5c per share beating analysts' earnings estimates of 2c per share. The EPS results included restructuring charges of 6c per share and was a 10c improvement from the third quarter of last year.

"Margins are up, costs are down and Xerox's streamlined business model is delivering sustainable profitability as well as strong operational cash generation," said Anne M. Mulcahy, chairman and chief executive officer, in a news release. "Through our strengthened operations and superior offerings, we are winning customers' confidence, attacking competitors' share in our sweet spots of the market and building value for Xerox stakeholders."

Operating cash flow for the quarter was $611 million, bringing the company's cash balance to $2.3 billion at the end of September. Revenue for the quarter was $3.8 billion, a year-over-year decline of 6%.

Commenting on the fourth quarter, Mulcahy said in the release: "While we expect that economic uncertainty will continue to impact year-over-year revenue results, total revenue in the fourth quarter will continue to trend positively, largely driven by significant equipment sales improvement due to new product launches. Enhanced business model improvements will strengthen our bottom line, delivering strong full-year profitability."

Adding to Xerox's positive earnings was the news earlier this week regarding a new funding agreement with General Electric. Under the agreement, GE will provide Xerox with up to $5 billion in funding for a period of eight years, secured by customer lease receivables. Furthermore, GE Vendor Financial Services will become the primary equipment-financing provider for Xerox customers in the U.S. through monthly advances against Xerox's new U.S. lease originations.

The financing agreement calls for GE to lend against Xerox's U.S. lease receivables at over-collateralization rates that are currently about 10%.

The $5 billion is in addition to the already funded $2.5 billion from GE, which is also secured by lease receivables.

In primary news, National Waterworks Inc. held its bank meeting on Wednesday regarding a new $325 million credit facility (B1/BB-), which was "very well attended", a syndicate source told Prospect News. Goldman Sachs, JPMorgan and UBS Warburg are the lead banks on the deal.

The loan consists of a $75 million six-year revolver with an interest rate of Libor plus 300 basis points and a $250 million seven-year term loan B with an interest rate of Libor plus 375 basis points, according to the syndicate source. Initial price talk had the revolver pricing at Libor plus 275 basis points and the term loan B pricing at Libor plus 325 basis points.

Up front fees are 25 basis points on the institutional tranche and 75 basis points for a commitment of $10 million on the pro rata portion, the syndicate source added.

Proceeds will be used to fund the acquisition of U.S. Filter Distribution Group Inc. by a company jointly owned by JPMorgan Partners and Thomas H. Lee Partners

National Waterworks is a Palm Desert, Calif. provider of water and wastewater systems.

The Aerostructures Corp.'s $165 million credit facility (B1/BB-) was flexed up by 25 basis points across the board and the commitment deadline was extended, according to market sources. Lehman Brothers is the lead bank on the deal.

The facility consists of a $130 million six-year term loan B with an interest rate of Libor plus 400 basis points, up from Libor plus 375 basis points, and a $35 million five-year revolver with an interest rate of Libor plus 350 basis points, up from Libor plus 325 basis points.

When the loan first launched into the market, it was met with some investor skepticism as pricing was viewed as light for the sector.

"I spoke to a sales guy at Lehman who said they're about halfway there, which I really doubt," a fund manager previously told Prospect News. "Something will have to change. I don't know anybody that would go out there and pay par or close to par for that industry. There's no way an aircraft deal will get Libor plus 375. That's a little weak,"

The credit facility is expected to close around Nov. 1.

Aerostructures, a Nashville, Tenn. supplier of airframe structures, plans to use the proceeds from the proposed credit facility towards refinancing debt.

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