Xerox $500 mln convertible trust preferreds talked at 7.5-8.0% yield, 15-20% premium

By Ronda Fears

Nashville, Tenn., Nov. 16 - Xerox Corp. launched $500 million of 20-year convertible trust preferreds with price talk of a 7.5% to 8.0% yield and 15% to 20% initial conversion premium. The Rule144A deal, via joint book-running lead managers Deutsche Banc Alex. Brown, Merrill Lynch and Salomon Smith Barney, is scheduled to price after the market close Tuesday.

The 20-year convertibles will be non-callable for three years with puts in years three, five, seven, 10 and 15 at par of 50 in stock or cash. The dividend will be collateralized with U.S. Treasury strips. The issue is expected to be rated Ba2 by Moody's Investors Service and B by Standard & Poor's. There is a $75 million greenshoe. The Rule 144A issue will not be sold with registration rights.

Xerox, the flagging office equipment maker, said it would use proceeds for general corporate purposes, including debt repayment. The company has a convertible outstanding, a 0.57% discount issue (Ba1/B+) sold in 1998 at 56.81, which had sank to the teens several months ago as the extent of Xerox's financial troubles emerged but has rebounded to the 45 to 50 neighborhood in recent weeks.

For third quarter, Xerox saw revenues slide 13% to $3.9 billion and posted a net loss of $211 million, or 29c per share, up from a net loss of $191million, or 30c per share, in third quarter 2000. For the nine months ending Sept. 30, the company had a 11% drop in revenues to $12.2 billion and recorded a net loss of $289 million, or 43c per share, versus the net loss of $237 million, or 39c per share, in the same period of 2000.

Financial weakness and other complications at Xerox brought the company down from investment grade status to junk rated territory, although the company has taken several steps toward a turnaround. The company is the subject of a Securities and Exchange Commission investigation into its accounting practices, and on Friday named Gary Kabureck temporary chief accounting officer to replace Gregory Tayler who was named to the treasurer post.

Xerox is web-casting an investor conference Monday from 8 a.m. to noon ET. Chief executive Anne Mulcahy and senior management will host the conference.

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