Xerox 2004 Annual Report Download - page 36

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Loan Covenants and Compliance: AtDecember 31,
2004, we were in full compliance with the covenants
and other provisions of the 2003 Credit Facility, the
senior notes and the Loan Agreement and expect to
remain in full compliance for at least the next twelve
months. Any failure to be in compliance with any
material provision or covenant of the 2003 Credit
Facility or the senior notes could have a material
adverse effect on our liquidity and operations. Failure
to be in compliance with the covenants in the Loan
Agreement, including the financial maintenance
covenants incorporated from the 2003 Credit Facility,
would result in an event of termination under the
Loan Agreement and in such case GECC would not be
required to make further loans to us. If GECC were to
make no further loans to us and assuming a similar
facility was not established, it would materially
adversely affect our liquidity and our ability to fund
our customers’ purchases of our equipment and this
could materially adversely affect our results of opera-
tions. We have the right at any time to prepay without
penalty anyloans outstanding under or terminate the
2003 Credit Facility.
Capital Markets Offerings and Other: In August
2004, we issued $500 million aggregate principal
amount of Senior Notes due 2011 at par value and, in
September 2004, weissued an additional $250 million
aggregate principal amount Senior Notes due 2011 at
104.25 percent of par. These notes, which are discussed
further in Note 9 to the Consolidated Financial
Statements, form a single series of debt. Interest on
the Senior Notes accrues at the annual rate of 6.875
percent and, as a result of the premium we received
on the second issuance of Senior Notes, have a weight-
ed average effective interest rate of 6.6 percent. The
weighted average effective interest rate associated
with the Senior Notes reflects our recently improved
liquidity and ability to access the capital markets on
more favorable terms.
In December 2004, we completed the redemption
of our liability to the Xerox trust issuing trust preferred
securities. In lieu of cash redemption, holders of sub-
stantially all of the securities converted $1.0 billion
aggregate principal amount of securities into 113 mil-
lion shares of our common stock. As a result of this
conversion and redemption, there is no remaining
outstanding principal. This redemption, which had
no impact on diluted earnings per share, is discussed
further in Note 10 to the Consolidated Financial
Statements.
Credit Ratings: Our credit ratings as of February 21,
2005 were as follows:
Senior
Unsecured
Debt Outlook Comments
Moody’s (1) (2) Ba2 Stable The Moody’s rating was
upgraded from B1 in
August 2004.
S&P B+ Stable The S&P rating on Senior
Secured Debt is BB-. The
outlook was upgraded to
stable in January 2005.
Fitch BB Positive The Fitch rating was
upgraded to a positive
outlook in February 2005.
(1) In December 2003, Moody’s assigned to Xerox a first time SGL-1 rating.
This rating was affirmed in August 2004.
(2) In August 2004, Moody’s upgraded the long-term senior unsecured debt
rating of Xerox from B1 to Ba2, a two notch upgrade. The corporate rat-
ing was upgraded to Ba1 and the outlook is stable.
Both our ability to obtain financing and the related
cost of borrowing are affected byour credit ratings,
which are periodically reviewed by the major rating
agencies. Our current credit ratings are below invest-
ment grade and we expect our access to the public
debt markets to be limited to the non-investment
grade segment until our ratings have been restored.