Moody's Downgrades Lexmark Corporation To B3, Outlook Negative.

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Moody's Downgrades Lexmark Corporation To B3, Outlook Negative.
Moody's expects Lexmark's liquidity will be barely adequate over the next 12 months given the upsized $200 million revolver is fully drawn, free cash flow in 2018 is expected to be negative, and scheduled term loan amortization in 2018 and 2019 will be $64 million each year.
Global Credit Research – 27 Feb 2018.
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https://www.moodys.com/research/Moodys-downgrades-Lexmark-to-B3-outlook-negative–PR_379895

New York, February 27, 2018 — Moody's Investors Service ("Moody's") downgraded Lexmark International, Inc.'s ("Lexmark") corporate family rating to B3 from Ba3. As part of the rating action, Moody's downgraded Lexmark's probability of default rating to B3-PD from Ba3-PD and the senior unsecured debt ratings to B3 from Ba3. The outlook remains negative.

RATINGS RATIONALE

Although Lexmark has a good market position in its core printing business within the mature global distributed printing and imaging industry, particularly in the Americas and parts of Europe, the company has suffered from the global shift to digital documents resulting in lower demand for the company's printing products. At the same time, the company has been going through a business model transition towards higher usage print devices, managed print services, and expansion into emerging markets while trying to realize cost synergies such as combining certain manufacturing functions such as procurement and assembly, with those of Apex Technology Co., Ltd. (aka Ninestar), the leading member of the acquiring consortium.

Moody's expects Lexmark's liquidity will be barely adequate over the next 12 months given the upsized $200 million revolver is fully drawn, free cash flow in 2018 is expected to be negative, and scheduled term loan amortization in 2018 and 2019 will be $64 million each year. Moody's expects continued tight management of working capital and capital spending (we note that manufacturing is largely outsourced). We expect liquidity to be weak beyond the next 12 months given the need to refinance the fully drawn $200 million revolver prior to its November 2019 expiry, four months ahead of the March 2020 maturity of the $351 million of senior notes. Moody's believes certain existing lenders would be willing to refinance the revolver given their longer dated term loan exposure, but there are no lending commitments and Lexmark's operating performance could weaken further. Non-core real estate was sold in December 2017 raising $46 million of cash, but we do not expect future asset sales to raise as much cash.

Rating actions:

Issuer: Lexmark International, Inc.

…Corporate Family Rating — Downgraded to B3 from Ba3

…Probability of Default Rating — Downgraded to B3-PD from Ba3-PD

…Senior Unsecured Debt — Downgraded to B3 (LGD4) from Ba3 (LGD4)

…Outlook: Remains Negative

Based in Lexington, KY, Lexmark is a global developer and manufacturer of laser printer, multifunction devices, and associated consumable supplies for the enterprise as well as small and medium-sized business markets. In November 2016, an Asian consortium acquired Lexmark in a $3.6 billion leveraged buyout.

The principal methodology used in these ratings was Diversified Technology Rating Methodology published in December 2015. Please see the Rating Methodologies page on http://www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES
 For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://www.moodys.com.
Click On this Link Below To Read The Whole Article.
https://www.moodys.com/research/Moodys-downgrades-Lexmark-to-B3-outlook-negative–PR_379895

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April 7, 2018 at 9:31 AM