XML 37 R24.htm IDEA: XBRL DOCUMENT v3.23.3
Debt
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Debt Debt
Revolving Credit Facility
In May 2023, Xerox Corporation, as borrower, and its parent company, Xerox Holdings Corporation, entered into a five-year asset-based revolving credit agreement (the ABL Facility) with Citibank, N.A., as administrative and collateral agent and several participating lending banks including Citibank N.A. The ABL Principal is payable in full at maturity on May 22, 2028, and there are no scheduled principal payments prior to maturity. We deferred approximately $7 of debt issuance costs in connection with the ABL Facility, which will be amortized over the five-year term. Our previous $250 Credit Facility due July 2024 was terminated prior to entering into the ABL Facility and resulted in a debt extinguishment loss of approximately $1 related to the write-off of deferred debt issuance costs.
Under the ABL Facility, Xerox Corporation may borrow up to the lesser of (x) $300 and (y) a borrowing base calculated based on working capital amounts (Accounts receivable and Inventories) as set forth in the ABL Facility Agreement. The ABL Facility includes an uncommitted accordion feature that allows Xerox Corporation to increase the facility by a total of up to $250, subject to obtaining additional commitments from existing lenders or new lending institutions. The ABL Facility also includes a $100 letter of credit subfacility. Xerox Corporation's borrowings under the ABL Facility are supported by guarantees from Xerox Holdings Corporation and certain of Xerox Corporation's Canadian and U.K. subsidiaries, and by security interests in substantially all of the working capital assets of Xerox Corporation, Xerox Holdings Corporation, and such Canadian and U.K. subsidiaries.
At Xerox Corporations’s election, the loans under the ABL Facility will bear interest at either:
(1)     a fluctuating rate per annum equal to the highest of (A) Citibank’s base rate, (B) a rate of 0.5% in excess of the “NYFRB” rate, and (C) a rate of 1.0% in excess of one-month Term SOFR, provided that such fluctuating rate
shall not be less than 0.0%, in each case plus an applicable margin (the loans bearing interest at such fluctuating rate, “ABR Loans”); or
(2)     the one-, three-, or six-month period or (as agreed to by the Agent and the Lenders) such other period, as selected by the Xerox Corporation, per annum Term SOFR (plus a 0.10% credit spread adjustment), provided that such rate shall not be less than 0.0%, plus an applicable margin (the loans bearing interest at such rate “Term SOFR Loans”).
The applicable margin for ABR Loans ranges from 0.5% to 1.0% depending on the Company’s average excess availability. The applicable margin for Term SOFR Loans from 1.5% to 2.0% depending on the Company’s average excess availability.
At September 30, 2023, borrowings under the ABL Facility were $220 and no letters of credits were issued under the facility. The $220 borrowing at September 30, 2023 currently bears interest at an average of 7.61% through October 30, 2023. If the balance remains outstanding after that date, the rate will be reset through a new borrowing under the ABL Facility. Based on management's intent to repay the amount borrowed by the end of 2023 and not refinance it past one year, the $220 is included in short-term debt in the Balance Sheet at September 30, 2023.
The ABL Facility requires the Company to comply with a fixed charge coverage ratio of 1X, as defined in the ABL Facility Agreement, measured as of the end of each fiscal quarter during which excess availability is less than an amount equal to the greater of (A) $22.5 and (B) 10% of the Line Cap (the lesser of the aggregate amount of Revolving Commitments and the then-applicable Borrowing Base). Based on the excess availability at September 30, 2023, the fixed charge coverage ratio measurement was not applicable. The ABL Facility also contains negative covenants governing dividends, investments, indebtedness, and other matters customary for similar facilities. As of September 30, 2023, we were in full compliance with all covenants under the ABL Facility and no Event of Default (as such term is defined in the ABL Facility) had occurred.
If an event of default occurs under the ABL Facility, the entire principal amount outstanding, together with all accrued unpaid interest and other amounts owed in respect thereof, may be declared immediately due and payable, subject, in certain instances, to the expiration of applicable cure periods.
Loan Facility
On September 28, 2023, Xerox Corporation, as borrower, and its parent company, Xerox Holdings Corporation, and certain of Xerox’s subsidiaries, as guarantors, entered into a Credit Agreement with Jefferies Finance LLC (Jefferies Finance), as the Administrative Agent, Collateral Agent and Lender pursuant to which Jefferies Finance provided Xerox Corporation with a $555 loan facility, which was fully drawn at September 30, 2023. $542 of the proceeds from that borrowing were used to finance the repurchase of an aggregate of approximately 34 million shares of the Company’s common stock from Carl C. Icahn and certain of his affiliates pursuant to the terms of a related purchase agreement as disclosed in Note 17 – Shareholders’ Equity of Xerox Holdings. The remainder of the proceeds were used to cover fees and expenses associated with this borrowing (approximately $6, which will be deferred as debt issuance costs) and the repurchase transaction (approximately $11, which will be recorded as a cost of treasury stock).
The Loan Facility is a 5-year agreement with a final maturity date of September 28, 2028 and bears interest at an annual rate of 8.50%, which will be increased by 0.25% every 90 days, subject to a Total Cap rate of 11.0%. Xerox anticipates refinancing amounts borrowed under the Loan Facility with permanent long-term financing instruments in the near term. If any of the amounts borrowed under the Loan Facility are outstanding on the “Bridge Loan Rollover Date” (one year from closing or September 28, 2024) then the outstanding principal amount of such loans will automatically be converted into senior secured term loans (Extended Term Loans). These loans will mature and are due on final maturity date of September 28, 2028 and will bear interest at the Total Cap rate of 11.0%.
Xerox’s obligations under the Credit Agreement are initially unsecured obligations and are supported by guarantees from Xerox Holdings and its Canadian and U.K. subsidiaries that guarantee Xerox’s obligations under the ABL Facility (ABL Foreign Guarantors). On and after November 30, 2023, if any amounts under the Loan Facility remain outstanding, Xerox’s obligations under the Credit Agreement will also be guaranteed by each of its material domestic subsidiaries (subject to certain exclusions and exceptions) and secured by (i) a second priority lien on all working capital assets of Xerox, the ABL Foreign Guarantors and such additional domestic guarantors and (ii) a first priority lien on substantially all other assets of Xerox, the ABL Foreign Guarantors and such additional domestic guarantors.
The Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default substantially similar with such provisions contained in Xerox’s ABL Facility.
Xerox Holdings Corporation/Xerox Corporation Intercompany Loan
At September 30, 2023 and December 31, 2022, the balance of the Xerox Holdings Corporation Intercompany Loan reported in Xerox Corporation’s Condensed Consolidated Balance Sheet was $1,497 and $1,496, respectively, which is net of related debt issuance costs, and the intercompany interest payable was $10 and $30, respectively.
Secured Borrowings and Collateral
In 2022 and 2021, we entered into secured loan agreements with various financial institutions where we sold finance receivables and rights to payments under our equipment on operating leases. In certain transactions, the sales were made to special purpose entities (SPEs), owned and controlled by Xerox where the SPEs funded the purchase through amortizing secured loans from the financial institutions. The loans have variable interest rates and expected lives of approximately 2.5 years, with half projected to be repaid within the first year based on collections of the underlying portfolio of receivables. For certain loans, we entered into interest rate hedge agreements to either fix or cap the interest rate over the life of the loan.
The sales of the receivables to the SPEs were structured as "true sales at law," and we have received opinions to that effect from outside legal counsel. However, the transactions were accounted for as secured borrowings as we fully consolidate the SPEs in our financial statements. As a result, the assets of the SPEs are not available to satisfy any of our other obligations. Conversely, the credit holders of these SPEs do not have legal recourse to the Company’s general credit.
During the second quarter 2023, we repaid the remaining balance from the December 2022 U.S. Secured Borrowing of $185 early with the proceeds from the sale of the underlying secured finance receivables of approximately $205. The sale was part of the sales completed in the second quarter 2023 under finance receivables funding agreement as disclosed in Note 9 - Finance Receivables, Net - Sales of Receivables. As a result of the early extinguishment of this debt, we incurred a loss of approximately $3 related to the write-off of the deferred debt issuance costs partially offset by a gain on a dedesignated swap associated with this borrowing.
Below are the secured assets and obligations held by subsidiaries of Xerox, which are included in our Condensed Consolidated Balance Sheets.
September 30, 2023
Finance Receivables, Net(1)
Equipment on Operating Leases, Net
Secured Debt(2)
Interest Rate(3)
Expected Maturity
U.S.(4)
January 2022$346 $— $215 6.80 %2024
September 20211103496.72 %2024
Total4563264
Canada(4)(5)
July 20231090846.32 %2026
France
December 202216301015.04 %2025
Total$728 $3 $449 
December 31, 2022
Finance Receivables, Net(1)
Equipment on Operating Leases, Net
Secured Debt(2)
Interest Rate(3)
Expected Maturity
U.S.(4)
December 2022$370 $— $247 7.43 %2025
January 2022528— 4075.83 %2024
September 202118051365.65 %2024
Total1,078 5790
Canada(4)
April 202263— 575.45 %2025
France
December 2022235— 1953.03 %2025
Total$1,376 $5 $1,042 
_____________
(1)Includes (i) Billed portion of finance receivables, net (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022.
(2)Represents the principal debt balance and excludes debt issuance costs of $1 and $5 as of September 30, 2023 and December 31, 2022, respectively.
(3)Represents the pre-hedged rate. Refer to Note 14 - Financial Instruments for additional information regarding hedging of these borrowings.
(4)Secured assets and obligations held by SPEs.
(5)In July 2023. the outstanding balance from the April 2022 loan was refinanced into a new loan, resulting in additional net proceeds of approximately $52.
Interest Expense and Income
Interest expense and income were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Interest expense(1)(2)
$44 $49 $140 $151 
Interest income(3)
49 55 159 164 
____________
(1)Includes Cost of financing as well as non-financing interest expense that is included in Other expenses, net in the Condensed Consolidated Statements of Income (Loss).
(2)Interest expense of Xerox Corporation included intercompany interest expense associated with the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan of $20 and $20 for the three months ended September 30, 2023 and 2022, respectively, and $59 and $59 for the nine months ended September 30, 2023 and 2022, respectively.
(3)Includes Financing revenue as well as other interest income that is included in Other expenses, net in the Condensed Consolidated Statements of Income (Loss).