Xerox: Exploiting the Fine Print

Welcome to the 179th Pari Passu newsletter.

Xerox is a name that needs no introduction. For decades, the company was so dominant in office printing that its brand became a verb, and to “Xerox” something meant to copy it.  At its peak, Xerox was one of the most valuable companies in the United States, home to the research lab that invented the graphical user interface, computer mouse, and the laser printer. However, by early 2026, the once-iconic company became popular for a very different reason. With $4.6bn in debt and a market cap that’s fallen from $8bn to $200mm in less than a decade, Xerox kicked off the year with one of the most creative sequences of liability management we’ve seen in a while. 

In the span of three weeks, Xerox launched a warrant program, allowing noteholders to effectively execute a debt-for-equity swap, before executing a deal-away LME with TPG credit that exploited an untested gap in its credit documentation. The transactions triggered an immediate creditor response and a broader debate about what actually happened, and what would follow. As of early March, the situation is still unfolding. 

In this piece, we’ll walk through Xerox’s business model and rich corporate history, including the invention of Xerography, Carl Icahn's involvement, and recent transformative add-on acquisitions. Then we’ll detail the company’s path to distress and the mechanics of the 2026 transactions, including an interesting investment opportunity in the company’s warrant-based deleveraging program and the novel joint-venture structure at the center of the deal. Additionally, we’ll cover the potential legal pathways used to pursue the transaction, including a theory on Xerox’s remaining basket capacity that may leave existing creditors exposed to another deal away. We’ll end with what we believe comes next for Xerox.

Before we dive into Xerox’s fascinating corporate history and recent transactions, it’s critical that we understand each component of its business model. 

Xerox Holdings Corp. is a manufacturer of printing devices that also provides software, managed print services, and IT infrastructure solutions. Founded in 1906 and listed on the NYSE in 1961, the company once served as a byword for photocopying itself, representing a rare but coveted example of a brand name becoming a verb. As of 2024, Xerox employed approximately 16,800 people and served customers across roughly 145 countries [1]. Today, following two transformative acquisitions in 2024 and 2025, the company operates as a three-headed entity. Legacy Xerox offers print hardware and managed print services, and Lexmark, acquired in 2025, strengthens the print platform with complementary A4 laser hardware offerings. Lastly, ITsavvy, acquired in 2024, adds higher-growth IT services under the umbrella. Understanding what each of these businesses actually does is essential to understanding the restructuring currently at play. 

To start, Legacy Xerox is the core print business that has defined the company for over a century. The company designs, manufactures, and services A3 and A4 office devices and related supplies, while also offering managed print services (MPS) contracts [2]. To quickly clarify, A3 and A4 refer to paper sizes under ISO 216, the international standard that defines the A-series paper sizes. A4 paper is 8.3 x 11.7 inches and is the standard everyday office sheet most commonly used. A4 is typically smaller and lower-priced. A3 paper is double the size of A4 at 11.7 x 16.5 inches, and is used for larger-format documents. A3 machines are larger and generally carry higher margins and service revenue. An image of the full A-series is below, but note that Xerox primarily sells A3 and A4 machines. 

Legacy Xerox’s economics rely heavily on MPS contracts. Typically, printing equipment is sold at modest margins to lock in long-term post-sale revenue from maintenance, supplies, and service arrangements. For context, MPS contracts represented roughly 54% of FY 2024 revenue. Xerox is a global leader in managed print services, alongside HP, Canon, and Ricoh, stemming from its massive base of installed units, global service network, and proprietary software platforms that create meaningful switching costs. 

Next, Lexmark International, acquired by Xerox in July 2025, is a Kentucky-based provider of printers and related software solutions. Lexmark’s strategic value to Xerox lies in three areas. First, it provides exposure to the faster-growing A4 color printing market, where Xerox had historically been underweight relative to its dominant A3 position. Second, it brought an established presence in the Asia-Pacific region, where Xerox previously had little presence. Lastly, Lexmark manufactures its own components in-house, meaning Xerox can swap out externally sourced components for Lexmark-produced ones, resulting in higher gross margins [2]. Combined, the Xerox-Lexmark platform commands roughly a quarter of the global MPS market [2]. 

Lastly, ITSavvy, acquired in November 2024, is an Illinois-based provider of integrated IT products and services. Unlike the legacy printing business, ITSavvy offers an array of IT solutions, including cloud services, cybersecurity, and hardware resale. While ITSavvy is the company’s fastest-growing segment, at 39% year-over-year in 2025, it still makes up less than 10% of the overall business. Nevertheless, it represents management’s efforts to diversify away from a declining print industry. 

The print industry as a whole has declined as a result of the shift toward digital workflows. This has been accelerated by COVID-19 and the rise of remote and hybrid work. Work deliverables that may have once been printed off are increasingly being shared digitally, resulting in a sustained decline in page volumes and equipment demand. We’ll dive into this dynamic in greater detail later on, but it's important to frame it early.

Lastly, before we move on, it's important to understand FITTLE, the equipment financing arm of Xerox. FITTLE provides leasing and installment financing to customers purchasing Xerox equipment, allowing businesses to pay over time rather than upfront. In doing so, it generates long-term lease receivables, which are typically funded through dedicated, receivables-backed borrowing facilities rather than traditional corporate debt. This is important, as Xerox separates its $1.5bn of financing-related debt from its “core” debt. In recent years, FITTLE has securitized and sold pools of lease receivables to third parties, such as the $600mm sale to HPS Partners, to generate immediate cash [2]. This strategy, which shrinks the financing book, can be used to mask otherwise negative free cash flow, which will become important context as we move into the company’s path to distress and the transactions that followed. 

The story of Xerox begins in 1906 with the founding of the Haloid Photographic Company in Rochester, New York, as a small manufacturer of photographic paper and equipment [3]. Over the following decades, the company would experience modest growth. 

Four decades later, the company’s trajectory changed forever. In the early 40s, Chester F. Carlson, a patent attorney and part-time researcher, developed a dry-copying process later known as xerography, from the Greek words “dry” and “writing”. Carlson approached and was rejected by over 20 companies, including IBM and GE, to license and develop the xerography machines [4]. In 1944, Carlson partnered with the Battelle Memorial Institute, a non-profit applied science and technology development institute, to further develop the process. On January 1st, 1947, current Haloid president Joseph C. Wilson made a risky bet on xerography, which remained commercially unproven, signing a licensing agreement with the Battelle Memorial Institute and investing heavily in the technology [4]. 

This gamble paid off spectacularly. In 1959, Haloid introduced the Xerox 914, the first automatic plain-paper copier [3]. Fortune later called it the most successful product ever marketed in America, and the company could not manufacture units fast enough to meet demand. By 1961, the company had renamed itself Xerox Corporation, listed on the NYSE, and was rapidly becoming one of the largest companies in the United States [3]. Over the following decade, Xerox would release an array of new products, creating an entire industry and making “Xerox” a verb. By the late 1960s, the company was generating billions in revenue and held a near-monopoly on the office copying market. Notably, from 1963 to 1975, at the height of its innovation, Xerox grew from $163mm in revenue to $4bn, a sustained 30% CAGR for more than a decade [5].

In 1970, the company established the Palo Alto Research Center, or PARC, which became arguably the most productive corporate research lab in history [3]. PARC invented the graphical user interface, the computer mouse, Ethernet, and more. Famously, however, Xerox’s management failed to commercialize most of PARC’s computing innovations, allowing Apple and others to build empires on technology that was generated in its own lab. One exception to this was the laser printer, developed by PARC, and launched in 1977 as the Xerox 9700. The 9700 was the first commercial laser printer and used xerographic principles to produce output directly from digital data, becoming a major revenue driver. 

Throughout the 1980s and 1990s, Xerox faced intensifying competition from Japanese manufacturers, particularly Canon and Ricoh, who eroded Xerox’s dominant position with cheaper and more reliable devices. Xerox remained a massively successful business, but the era of sustained double-digit growth and a near-monopoly over the office copying and printing market was coming to an end. 

Fast forwarding to Xerox’s modern history, one of the company’s most consequential decisions came in 2010, when Xerox acquired Affiliated Computer Services (ACS) for $6.4bn [6]. ACS was a Dallas-based business process outsourcing (the delegation of non-core business functions to outside providers) firm founded by Darwin Deason in 1988, and the acquisition was Xerox’s attempt to follow the same hardware-to-services model employed by HP and Dell. Xerox believed that pairing its own installed base and customer relationships with ACS’s IT services would create an end-to-end document and process management company. Ultimately, however, this thesis never materialized, and projected synergies underdelivered. Xerox ended up selling off ACS’s IT outsourcing arm for just $1bn in 2014, and spinning off the remainder of the company as Conduent in January 2017 [7]. When all was done, the company had spent six years and billions of dollars on a diversification strategy that ended up leaving it right back where it started as a pure-play print company in a now-shrinking market. 

The next development in Xerox’s history involves Carl Icahn. The famous activist investor first took a 7.1% stake in Xerox in late 2015, and over the following years, he became the company’s largest shareholder at 21.8% [8]. In the late 2010s, Xerox’s market cap averaged roughly $7bn, meaning Icahn had built up a massive stake worth roughly $1bn. Icahn’s involvement shaped many of Xerox’s major decisions over the following years. The biggest of which was in January 2018, when Xerox announced a proposed $6.1bn combination with Fujifilm Holdings via the two companies’ Fuji Xerox joint venture. Fujifilm was a Japanese imaging and technology company that had historically managed Xerox’s business across the Asia-Pacific region via the joint venture. The proposed merger would have given Fujifilm shareholders 50.1% control of the combined entity. Icahn, along with Darwin Deason, who was now Xerox’s third-largest shareholder, launched a campaign against the transaction, arguing that it undervalued Xerox and would leave shareholders as a permanent minority. Three months later, in April 2018, a New York State Supreme Court judge agreed and temporarily blocked the deal on the grounds that Xerox’s CEO had engineered a “one-sided deal” to preserve his own job [9]. Weeks later, Xerox terminated the agreement, ousted its CEO and six of ten board members, and installed a board handpicked by Icahn. 

In early 2020, Xerox launched a hostile $35bn bid for HP Inc., which was roughly four times its size. While it would have been one of the most audacious acquisitions in corporate history, the bid was abandoned in March 2020 as COVID-19 tore through global markets [10]. On the operational side, COVID hammered Xerox’s core business as the shift to remote work and digital workflows took hold. Revenue fell from $9.1bn in 2019 to $7bn in 2020, a 23% decrease [2]. As volumes fell rapidly amid a static, fixed-cost base, adj. EBITDA fell by an outsized 51% from $1.6bn to $776mm [2]. It goes without saying that markets took notice, and Xerox’s market cap halved from $8bn to below $4bn in a matter of weeks. However, unlike many COVID-driven valuation downturns, Xerox’s valuation would never recover. 

Over the next few years, Xerox battled a continued low-single-digit topline contraction, stemming from the same headwinds we detailed above. The hybrid work model that emerged post-pandemic permanently reduced office print volumes to roughly 80-85% of pre-COVID levels, as deliverables that were once printed were increasingly shared digitally [2]. Equipment sales declined as corporate customers needed fewer replacements and deferred upgrades, and MPS revenues eroded as well because less-used machines required less maintenance, supplies, etc. While revenue had stabilized by 2023, adj. EBITDA continued to fall as Xerox’s cost structure was built around servicing a large install base and running a global manufacturing network. 

In September 2023, amidst continued headwinds, Xerox repurchased Carl Icahn’s entire 21.8% stake for $542mm, implying a total valuation of roughly $2.5bn [8]. Xerox funded this purchase via a new $500mm term loan [11]. Additionally, three of Icahn’s directors resigned from the board. For Xerox, this repurchase eliminated its most vocal shareholder, but added an incremental $500mm in debt. 

Following Icahn’s exit, Xerox began a fundamental transformation driven by the two major acquisitions we detailed above. The first was that of ITSavvy in November 2024. Xerox paid $400mm for ITSavvy, funding the acquisition with $180mm of cash and $220mm of secured promissory notes, due 2025 and 2026 [12]. 

Then, in July 2025, Xerox closed the Lexmark acquisition for $1.5bn. The deal was funded with a combination of new 1L term loans, 1L and 2L secured notes, and cash on hand. The deal valued Lexmark at just 4.7x LTM adjusted EBITDA of $318mm, illustrating the market’s view of the print industry [13]. While this acquisition was transformative for Xerox, adding in-house manufacturing capabilities and a complementary print portfolio, it pushed total funded debt to $4.2bn, and consolidated net leverage to 7.5x, a level that would have been unthinkable for a company that carried investment-grade ratings as recently as 2018 [1]. 

Before addressing Xerox’s recent distress and series of transactions, it’s important that we review its complex capital structure as of Q4 2025 [1]. 

By Q4 2025, Xerox carried roughly $4.35bn of total funded debt against LTM adjusted EBITDA of $512mm, resulting in total leverage of 8.5x and net leverage of 7.5x after accounting for $512mm of cash on hand [1]. The capital structure is layered across three distinct legal entities. Xerox Corporation, the operating company, holds all secured debt, while Xerox Holdings Corp. holds the unsecured notes. Lastly, a small set of legacy debt sits structurally junior to both. 

First lien secured debt at Xerox Corp totals $1.1bn, or roughly 26% of total debt, and includes the ABL (undrawn), TLB, its incremental tranche, and the 10.25% 1L SSNs. Second lien debt adds another $610mm, bringing total secured claims to $1.7bn or 3.4x EBITDA. Below that, Xerox Holdings carries approximately $2bn of unsecured debt across five instruments maturing between 2026 and 2030. It’s important to note that these unsecured notes comprise nearly half of Xerox’s current capital structure and trade at deep discounts, a detail that will become important later. At the very bottom sit $600mm in structurally junior legacy senior notes. 

Another feature of the capital structure worth pointing out is the front-loaded maturity profile. Roughly $750mm in 2028, and over $1.3bn in 2029, creating a maturity wall that presents substantial refinancing risk considering the company’s high leverage and depressed valuations across the office print industry. 

The two most important credit agreements are the TLB agreement, which covers the term loan and its incremental tranche, as well as the 1L and 2L SSN indentures. The restrictive covenants within these two agreements heavily influenced Xerox’s approach to its upcoming transaction, which we’ll cover in detail. 

While the corporate history above details how Xerox arrived at over 8x leverage, we’ve yet to cover the company’s recent cash flow and liquidity issues. 

From 2018 to 2025, Xerox’s revenue fell from $9.7bn to $7bn, a 28% drop over seven years [2]. Importantly, the 2025 figure includes roughly $1.8bn from the Lexmark acquisition and ~$760mm from ITSavvy. Excluding both, legacy Xerox standalone revenue was approximately $4.5bn, representing a 54% organic decline from the 2018 base. While in 2025, the Lexmark and ITSavvy acquisitions were able to partially offset the company’s topline issues, profitability continued to deteriorate. Adj. EBITDA margins compressed from nearly 17% in 2018 to just 7.3% in 2025, as the company’s cost structure, built to support a $10bn+ revenue base, became difficult to right-size against a shrinking installed base [2]. As a result, Adjusted EBITDA fell from $1.6bn to $512mm, a disproportionate 68% decline over the same period. 

However, the most important line in the table is the last one. In 2025, reported free cash flow was $133mm, which on the surface suggests Xerox still has breathing room. However, as we hinted at in the business model section, this figure includes $489mm of finance receivables sales. Stripping that out yields adjusted FCF of ($356mm), a drastically different figure from the headline $133mm [1]. This represents the acceleration of a trend that had been building for years, as true profitability was much lower than reported, adjusted FCF turned negative in 2024 at ($196mm), and further deteriorated in 2025. 

This is the backdrop against which Xerox retained Kirkland & Ellis and Lazard as legal counsel and financial advisor in October 2025, leading us to the 2026 transactions, ahead of the 2028-2029 maturity wall mentioned above. 

In late January 2026, Xerox began a series of transactions aimed at raising liquidity and deleveraging.

The Warrant Distribution:

On January 28, 2026, Xerox announced a pro-rata warrant distribution, the first in a series of liability management maneuvers. The program was distributed to holders of common stock, Series A Convertible Preferred, and the 3.75% Convertible Notes. However, the true target audience was the company’s unsecured debtholders. 

Here’s how it’s unfolded. On February 12, 2026, Xerox distributed roughly 77mm warrants, one warrant per two shares of common stock, with convertible and preferred holders receiving warrants as if they had already converted into common stock. Each warrant gives the holder the right to buy one share of Xerox common stock at an exercise price of $8.00, exercisable at any time until February 11, 2028 [14]. 

At first, the warrants look worthless, as Xerox’s stock trades under $2.00, so paying $8.00 for a share in cash makes no sense. However, the warrants include a second exercise option. Instead of paying $8.00 in cash, warrant holders can surrender certain outstanding Xerox debt securities (the “Designated Notes”) at face value. These designated notes include all outstanding notes except for the SUNs due 2026 [14]. That means $8.00 of face value debt, regardless of where it currently trades in the secondary market, buys one share of stock. This effectively creates a debt-for-equity swap, where Xerox can retire debt without using any cash. In total, the warrant distribution could retire up to an estimated $600mm in unsecured debt [14]. 

This is where the unsecured noteholders enter the picture. The warrants were distributed to equity holders, not bondholders, but the warrants trade freely on the Nasdaq, so anyone, including unsecured noteholders, can buy them. The math illustrates why this matters. Consider a holder of $1,000 face value of Xerox’s 10.25% 2030 unsecured notes. As of early February, these notes traded between 15 and 20 cents, implying that they are effectively out of the money. Moreover, the market is pricing in the possibility of a coercive LME, under which unsecured creditors may be forced into a deeply discounted exchange, receiving a fraction of their face-value claims. 

Rather than waiting for a sale, LME, etc., the warrants offer a third option. To exercise a warrant, the holder needs to pay the $8.00 exercise price. But instead of paying in cash, the holder can surrender Designated Notes at face value. This means that $8.00 of face value debt, regardless of market price, satisfies the exercise price for one share. A noteholder with $1,000 face value of the SUNs, excluding the 2026 notes, can therefore exercise 125 warrants ($1,000 ÷ $8 per warrant), receiving 125 shares of Xerox common stock.

Now, it's important to note that these shares are not guaranteed to be worth $8 each. Xerox's stock was trading around $2 at the time of the distribution, meaning the 125 shares had a market value of roughly $250. On the surface, surrendering $1,000 of face value debt for $250 of equity looks like a bad trade, but we need to consider two key factors: the debt is trading at deep distressed prices, so the swap does not create additional impairment relative to the market value of the bonds as the trade is entered, and the retirement of debt should create equity appreciation, resulting in potential upside. 

In any case, the warrants create an opportunity for everyone, including market participants not currently involved with Xerox, who could spend time evaluating a trade that involves buying Xerox debt, tendering it to exercise the warrants, and then selling the shares in the open market. To illustrate the math around this thesis and its dynamic, we will look at the 2039 notes. 

Let’s assume an outside investor purchases $50mm of notional exposure. The investment cost can be calculated as $50mm of face value times market price, which is around 30c, or ~$15mm. As we explained above, the next step would see swapping each $8 of face value for 1 warrant. In our trade, our $50mm would result in 6.25mm shares. At the share price of $2, this would bring the value of the stake to $12.5mm, a $2.5mm paper loss.  

This brings us to the core thesis around the trade, which is that, all else equal and in theory, the equity value should appreciate by the same amount as the face value of retired debt (the total enterprise value stays unchanged, but the trade is converting debt into equity). In this case, we would assume a $50mm increase in equity value (the same face value of debt retired), which should (emphasis added) result in $0.4 of share appreciation ($50mm of equity value increase divided by 128mm shares outstanding) for a new share price of $2.4. As a holder of 6.25mm shares, this increase is worth $2.5mm, bringing our market value of the investment to $15mm, the same as the cost basis. 

Now, in isolation, this does not strike as an attractive proposition considering the incremental risk that the investor would assume in holding the stock, but this analysis is also only looking at one trade. If another fund were to make the same trade, assuming the market efficiency would hold (and shares increase by an incremental $0.4), the investor stake would now be worth $17.5mm, representing a ~16% return. Obviously, this analysis is a gross simplification as it excludes transaction costs and the slippage that the purchase would imply, but we wanted to illustrate the rationale behind a potential investment. 

Finally, we should note that the timing of the warrant distribution was intentional, as it was launched three weeks before the next transaction, signaling to unsecured creditors that the company is actively working to deleverage, and participating now is likely favorable to what will come next. 

The Joint Venture Transaction:

On February 17, 2026, three weeks after announcing the warrant distribution, Xerox announced a $450mm deal-away liquidity raise with TPG Credit. The deal was structured as a…