(Bloomberg) -- Moody’s Ratings said on Tuesday that it is looking at upgrading Xerox’s credit grades, citing the company’s agreement to buy Lexmark International Inc., a step that will ultimately help improve key measures of the company’s debt load and cash flow.  

The acquisition is expected to help lower the ratio of Xerox’s debt to a measure of earnings, according to Moody’s, a sign of an easier burden. That ratio will fall to less than 5.2, from 5.4, the ratings firm said, based on adjusted figures as of September 2024, even without any cost cutting. 

The acquisition is also expected to improve free cash flow measures, the ratings firm said. In deciding whether to upgrade Xerox, Moody’s said it will look at factors including projected revenue trends for the combined companies, potential for cost cutting, and how Xerox plans to handle debt that is maturing soon. 

Moody’s currently rates Xerox senior unsecured notes at B3, or six steps below investment grade. The technology company had about $3.27 billion of short- and long-term debt as of Sept. 30, according to a regulatory filing. 

Xerox is buying Lexmark from a consortium of Asian investors in a deal valued at $1.5 billion. As part of the takeover, Xerox will cut its annual dividend in half, to 50 cents a share, which it said gives it more capacity to reduce debt. 

The purchase is expected to close in the second half of 2025, subject to regulatory approval in the US and China.    

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