Xerox’s senior unsecured notes downgraded to ’B’ by S&P Global

Investing.com -- S&P Global Ratings has lowered its rating on Xerox Holdings Corp. and Xerox Corp (NASDAQ:XRX).’s senior unsecured notes to ’B’ from ’B+’ following the completion of the Lexmark International acquisition.

The rating agency removed the notes from CreditWatch negative, where they had been placed since January 3. The downgrade reflects the increased amount of secured debt in Xerox’s capital structure after finalizing the Lexmark acquisition on July 1, which S&P believes will result in lower recovery prospects for unsecured noteholders in a potential default scenario.

S&P also withdrew its ’B-’ rating on previously proposed senior unsecured payment-in-kind toggle notes that were not issued. Instead, Xerox issued $250 million in senior unsecured step-up notes due 2030 and $125 million in senior unsecured bridge notes due 2026, which S&P does not rate.

The agency maintained its ’B+’ issuer credit rating on Xerox with a negative outlook, reflecting concerns about execution risks as the company attempts to return to long-term organic revenue growth while facing challenges in the print industry and integrating Lexmark.

S&P’s 2025 expectations for Xerox, including the Lexmark acquisition, project a revenue decline of about 1%, adjusted leverage of approximately 5x, and core free operating cash flow to debt of about 1%, improving to 4% in 2026.

The rating agency noted that business underperformance or integration challenges could lead to a downgrade, as there is minimal cushion at the current rating level.

S&P maintained its ’BB’ rating on Xerox’s first-lien term loan and first-lien notes, with a recovery rating of ’1’, indicating an expected recovery of 90%-100% in a default scenario. The ’B+’ rating on second-lien notes reflects an expected 50%-70% recovery.

The newly downgraded senior unsecured notes now carry a ’5’ recovery rating, suggesting a modest 10%-30% recovery in a default scenario.

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