Research Update: Xerox Holdings Corp. Downgraded To 'BB-' On Increased Leverage And Weaker Free Cash Flow Expectations; Outlook Negative

We now expect U.S.-based printer technology and services company Xerox Holdings Corp. to generate close to break-even core free operating cash flow (FOCF) in 2024, excluding the benefit of a strategic run-off of its finance receivables portfolio. This compares to our previous forecast of about $200 million and is due to a weaker-than-expected operating performance in the first half. We also now expect S&P Global Ratings-adjusted leverage to increase to the low-3x area in 2024 with a revenue decline of up to 6% and higher freight and product costs offsetting cost savings from an ongoing transformation program and causing only a slight EBITDA margin improvement. We previously expected leverage in the mid-2x area at year-end. We therefore lowered our issuer

...- We now expect U.S.-based printer technology and services company Xerox Holdings Corp. to generate close to break-even core free operating cash flow (FOCF) in 2024, excluding the benefit of a strategic run-off of its finance receivables portfolio. This compares to our previous forecast of about $200 million and is due to a weaker-than-expected operating performance in the first half. - We also now expect S&P Global Ratings-adjusted leverage to increase to the low-3x area in 2024 with a revenue decline of up to 6% and higher freight and product costs offsetting cost savings from an ongoing transformation program and causing only a slight EBITDA margin improvement. We previously expected leverage in the mid-2x area at year-end. - We therefore lowered our issuer credit rating on Xerox to '##-' from '##'. We also lowered our issue-level ratings on its senior secured term loan to '##+' from '###-' and on its senior unsecured notes to '##-' from '##'. - The negative outlook reflects the significant...

Research Update