business

S&P Affirms Xerox Credit Rating

While the copier giant has made progress in its turnaround bid, economic weakness will hamper its efforts to improve operating earnings

On Jan. 7, Standard & Poor's assigned its double-'B' rating to Xerox Corp.'s (XRX ) senior notes due 2009. The notes, expected to total $500 million, will be denominated in dollars and euros. At the same time, Standard & Poor's affirmed its ratings on Xerox and its subsidiaries.

The ratings reflect the company's good position in its core document processing business, a sizable recurring revenue base, and a broad product lineup, offset by highly competitive industry conditions with diminished growth expectations. The ratings also reflect Standard & Poor's expectations of substantial, ongoing debt reductions and successful renegotiation of Xerox' bank facility maturing in October, 2002.

Xerox has made material progress in executing its turnaround program, including: asset sales totaling more than $2 billion, significant cost reduction and cash conservation actions, and agreements to transition the majority of Xerox' equipment-financing business to third parties. However, economic weakness has reduced Xerox' prospects for significant improvement in operating earnings and debt-protection measures in the near term.

Xerox has substantially completed its $1 billion cost-reduction program announced last year, while improved asset management and asset sales should continue to provide sufficient liquidity and financial flexibility to meet near-term debt maturities (excluding the $7 billion bank facility).

The current rating incorporates the expectation that Xerox will successfully renegotiate its bank facility and, as the economy allows, significantly improve operating profit for fiscal 2002 from what it currently expects to report for fiscal 2001.

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