Street Calls of the Week
Investing.com -- S&P Global Ratings has lowered its rating on Conduent Inc. to ’B’ from ’B+’ due to slower-than-expected EBITDA improvement and weak cash flow generation, while maintaining a stable outlook.
The rating agency cited Conduent’s elevated S&P Global Ratings-adjusted gross leverage, which is expected to remain above 5x through 2026. Despite gradual EBITDA margin improvements during the first half of 2025, the company continues to face revenue declines, particularly from a large customer in its commercial solutions business.
Conduent is currently implementing cost-saving initiatives to eliminate stranded corporate costs associated with divested assets. S&P expects these initiatives to be fully realized in 2026, with EBITDA margins improving to approximately 6.5%. However, downward revisions to revenue expectations will result in lower EBITDA and leverage of about 5.5x in 2026.
The company’s ongoing portfolio rationalization efforts, following numerous divestitures since 2022, have reduced its EBITDA and EBITDA margins. While S&P does not anticipate similar disruptions from future divestitures, Conduent’s leverage will remain high in 2025 with negative free operating cash flow (FOCF).
S&P views Conduent’s liquidity as solid, noting that the company refinanced its revolving credit facility in August 2025, using it to repay approximately $80 million in outstanding term loans. The company reduced its revolver commitments to $357 million from $550 million but still has about $250 million available under its revolving credit facility and approximately $275 million in cash as of June 30, 2025, compared to about $661 million of reported debt.
The rating agency forecasts negative $20 million to $30 million of reported FOCF in 2025 due to revenue declines, low EBITDA margins, and elevated one-time costs related to restructuring and the company’s January 2025 cybersecurity incident. S&P expects Conduent to realize benefits from cost-saving initiatives and reduce one-time costs in 2026, driving EBITDA growth and cash flow generation.
The stable outlook reflects S&P’s expectation for Conduent’s leverage to improve to mid-5x in 2026, with solid liquidity including over $250 million of cash on the balance sheet and about $250 million of availability on its revolving credit facility.
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