Xerox's bank debt got an additional boost last Tuesday on news that the company had secured an agreement with manufacturing services company Flextronics. The debt notched up to 85 1/2 - 86 1/2 from the 85 range. An estimated $10-$20 million changed hands. Xerox is based in Stamford, Conn. Calls to Barry Romeril, cfo, were referred to spokeswoman Christa Carone. "Outsourcing the deal gives us some more flexibility," she said. Last week Romeril announced his retirement from Xerox.
The Flextronics agreement includes payment to the company of approximately $220 million and assumption of certain liabilities for the sale of inventory, property and equipment. Dealers explained this allows for a variable manufacturing rate, rather than fixed, which gives the company some financial flexibility in a market downturn. "If you have your own manufacturing plant, it just sits there [in a market downturn]. But if someone else does the manufacturing, they charge a mark up on what they produce for you," a market player explained, adding that only 50% of Xerox's products are manufactured outside the company. "It's all lower-end stuff," he said.
Two weeks ago the company had announced third-party financing, which sparked some upward trading into the 85 range. Last week dealers said the company is in talks with companies outside the country for further vendor financing agreements. Xerox has a $7 billion facility that matures in 2002 and is priced at 15 basis points over LIBOR. BANK ONE, J.P. Morgan and Citibank are the lead arrangers.