Thursday April 18, 12:46 pm Eastern Time
Xerox Seen Renegotiating With Banks, Despite Filing
By: Donna Fuscaldo, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Xerox Corp. (NYSE: XRX - news) (XRX) is expected by industry watchers to refinance a portion of its $7 billion credit line, despite strong language the company used in a filing wi ADVERTISEMENT
th the Securities and Exchange Commission.
Late Wednesday, the Stamford, Conn ., copier icon said in an SEC filing that its viability will be in doubt if it fails to refinance part of a $7 billion credit agreement that matures Oct. 22 . The company said it believes that " significant progress" has been made in discussions with the 57-bank group involved in the negotiations, and that talks should be completed by the end of June.
Still, if the credit pact isn't refinanced by Oct. 22 , the bank group could declare a payment default and accelerate maturity of the outstanding balance, Xerox said.
Despite Xerox's comments Thursday that the SEC filing doesn't represent any new developments and that it has made "significant" progress with the banks, investors still sold off the stock over fears that Xerox could be in trouble.
Shares of the company fell as much as 6% at the open, but recovered a bit and were recently trading down 4%, or 40 cents, to $9.19, on volume of 8.4 million. Average daily volume is 5.1 million shares.
According to Xerox spokesman Christa Carone, Xerox said on April 1 it made progress with the lenders in renegotiating the revolver and extending its maturity. She noted that Xerox has $4.7 billion in cash.
While it's true, Xerox's ability to continue as a going concern would come into question if it couldn't renegotiate its revolver, analysts said Thursday that the company should be successful in its dealings with the banks.
"We do believe that Xerox will be able to renegotiate the bank line," wrote Lehman Brothers Inc. analyst Caroline Sabbagha, in a research report.
Echoing her assessment, Peter Ausnit, an analyst at Deustche Bank, said his expectation is Xerox will be able to refinance. Ausnit noted that Xerox's disclosure wasn't a new development.
But if expectations are that Xerox will work out a deal with the 57 banks, which holds the fate of the company in their hands, why did it use such strong language in its filing?
Greg Smith, an analyst at H&R Block, said the answer is simple considering Xerox's recent agreement with the SEC.
"It's their duty to put it in the filling, especially given the recent circumstances," said the analyst. "Here's a firm that has been exonerated from what's happened over the last several years. If anything they don't want to bring on additional trouble" by not disclosing the ramifications if the credit line matures in October.
Earlier this month, Xerox agreed to pay a $10 million civil penalty - the largest ever levied against a public company by the SEC - in connection with accounting irregularities. The company also has to restate its financial results from 1997 to 2000.
The SEC had been investigating Xerox since June 2000 , claiming the company's revenue-allocation methodology for bundled contracts, which typically include equipment, services, supplies and financing, didn't comply with regular accounting standards. In its settlement, Xerox neither admitted or denied the charges.
According to Smith, Xerox's comment in the filing could actually speed up negotiations with the banks.
"I think this provides additional urgency for the bankers to do something," said Smith. "Clearly they don't want to let it go to October."
While Lehman's Sabbagha agreed that Xerox had to make such a risk disclosure because the bank line matures in less than a year, she noted that a final agreement with the banks could get delayed until Xerox files its rested financials, which will be within in 90 days.
Although Sabbagha is cautious on the company over the long term, she said the stock could get back into the low teens on positive news, like renegotiating its bank line.
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