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“Fallen angel” Xerox downgraded

December 19, 2018

The OEM has been downgraded from investment grade to junk by Moody’s Investors Service, following a similar move by Fitch Ratings in August.

According to Fortune, Moody’s cited “an uncertain revenue base” as one of its key reasons, as well as a “decline in demand for copy and printing services.”

Global competition, described as “intense”, was another factor. To compound the OEM’s woes, it is also currently on review for a downgrade from S&P Global Ratings, with that company’s watch period due to end within the next ten days.

Xerox could well become the next “fallen angel,” an investment-grade credit which falls into junk. Many BBB-rated companies (the lowest possible rating in the high-grade space) may well end up being downgraded relatively imminently, Fortune contends, as “several have spent much of the last decade issuing debt to take advantage of low borrowing costs.”

Robert Schiffman and Mike Campellone, analysts for Bloomberg Intelligence, said in October that Xerox’s secular declines and execution challenges were unlikely to fade away any time soon.

“Ratings pressure is likely to persist, with additional non-investment grade risk growing each quarter,” the pair explained.

Fortune reports that Xerox’s notes, due in 2021, “widened 56 basis points to 300 above Treasuries in Friday’s session, according to Trace price data, and were the most active in the investment-grade market. The cost to protect against losses on Xerox debt also jumped, reaching the highest level since 2009. Credit-default swaps on the company widened 33 basis points to 349, data from CMA shows.”

In other news, the OEM recently revealed that it would be hosting a live video webcast of its Investor Day presentation, held on February 1 2019. The webcast, presented by CEO John Visentin and CFO Bill Osbourn Jr., will provide an overview of the company’s strategy and financial objectives.

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