Xerox negotiating to replace $7 billion revolver, bought back sterling bonds

By Peter Heap

New York, Nov. 13 - Xerox Corp. said it is negotiating to replace part of its revolving credit facility and extend its maturity beyond October 22, 2002. The Stamford, Conn. document company has currently drawn down the full $7 billion available under the revolver.

Xerox (Ba1/BB/BB) also said it bought back £129 million - equivalent to $184 million - of sterling bonds and that it had to terminate $184 million of derivative contracts after Standard & Poor's downgraded its rating on the company to junk last month.

At present, Xerox said in a filing with the Securities and Exchange Commission, it believes its liquidity is sufficient to "meet current and anticipated needs going forward," subject to timely execution of the various actions and refinancing of part of the revolver. If it cannot negotiate a new credit facility, the company would suffer "serious adverse" effects on its liquidity and would have to seek other sources of cash.

At Sept. 30, Xerox added, it had $2.4 billion of cash on hand.

Discussions on refinancing the revolver were initiated "recently," Xerox said, and are being held with the agent banks.

Xerox drew down the entire $7 billion available on its revolver in the fourth quarter of 2000 after the credit rating agencies downgraded its debt. Since October 2000, Xerox noted, uncommitted bank lines and unsecured capital markets have been "largely unavailable" to the company and are expected to remain that way.

The revolver has one financial covenant, requiring Xerox to maintain a minimum $3.2 billion of consolidated tangible net worth. At Sept. 30, the company exceeded that figure by $182 million, down by $330 million from Dec. 31, 2000. Xerox said it expects to continue in compliance with the covenant.

During the first nine months of 2001, Xerox said in the SEC filing that it retired $340 million of long-term debt in exchange for 37.4 million shares. That action increased consolidated tangible net worth by $319 million. Since Sept. 30, Xerox has retired a further $35 million of debt in exchange for 3.8 million shares, adding a further $32 million to consolidated tangible net worth.

Xerox also repaid on Oct. 11 £125 million of 8¾% guaranteed bonds issued in 1993 and maturing in 2003 for £129 million. That action followed a second meeting of bondholders on Oct. 4 at which 79% voted in favor of a proposal to redeem the debt at 103 plus accrued interest. An earlier meeting did not approve redemption. As well as reducing debt, Xerox said repaying the bond eliminated restrictive covenants, increasing its flexibility.

Thanks to the discussions on refinancing the revolver and progress on its restructuring, Xerox said that it has let expire a commitment letter from Bankers Trust Co., a unit of Deutsche Bank, for a $500 million fully underwritten secured revolving borrowing facility. The commitment was announced on June 5, 2001.

For the remainder of 2001, Xerox has $1.3 billion of debt coming due and a total of $9 billion in 2002, most of it the $7 billion revolver in the fourth quarter. Other 2002 maturities are $300 million in the first quarter, $1 billion in the second quarter, $100 million in the third quarter and $600 million in the fourth quarter.

Moody's Investors Service cut Xerox to junk in December 2000, which result in the company having to repurchase some outstanding derivative agreements. It had to spend a further $148 million to buy back interest-rate and cross-current interest-rate agreements after Standard & Poor's cut Xerox to junk on Oct. 23, 2001, according to the SEC filing.

Two of the terminated derivatives were replaced with a contract with a new counterparty for which Xerox has to post collateral on out-of-the-money positions.

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