[Editor’s note: This is an update of a previous Debtwire story published 16 September to include additional information on the potential deal and the company’s financial metrics in paragraphs one, two and three, and updated trading levels in paragraph five]

UBS is conducting outreach in support of a non-deal roadshow for Lexmark International, according to three sources familiar with the matter. The bank is talking to institutional investors to gauge interest in a potential refinancing deal that would reduce the company’s reliance on Chinese lenders, according to two sources familiar with the situation.

The US-headquartered printing technology company is aiming to tap investors to replace its current debt – much of which is in the form of high-amortization loans held by Chinese banks – with a more conventional capital structure, the sources said.

Lexmark has roughly USD 1.7bn of debt, putting leverage at just under 6x based on around USD 300m of EBTIDA, the sources added.

In May, the printing technology company said it had obtained a loan commitment from China Citic Bank for a USD 339m delayed-draw term loan to refinance Lexmark’s 2020 notes, as reported.

The USD 340m 7.125% senior secured notes due 2020 are still outstanding, and traded today in odd lots at 97.875 for a 11.805% yield, up from 11 September when they changed hands at 97.25 to yield 12.915%, according to MarketAxess.

Lexmark was acquired by China-based Apex Technology (now known as Ninestar Group) in 2016 in a USD 3.6bn LBO. As of May, the company’s capital structure comprised the notes and roughly USD 1.35bn of loans, mostly funded by Chinese banks and maturing in 2023, with Citic as the largest existing lender, as reported.

Soon after, Lexmark obtained the USD 339m loan commitment from China Citic this past May, Standard & Poor’s upgraded the company by one notch to CCC+, but warned of concerns over Lexmark’s longer-term sustainability.

“While the debt commitment alleviates the company’s near-term liquidity challenges, we continue to expect higher debt amortization payments will lead to negative adjusted free operating cash flow (FOCF) after debt service,” the S&P analysts wrote at the time. “Our uncertainty with respect to the company’s ability to service debt longer-term leads us to believe that the capital structure is unsustainable.”

Also in May, Moody’s affirmed its B3 corporate rating for Lexmark and changed the outlook to stable from negative.

Moody’s estimated that leverage was just less than 6x as of the end of 2018. The agency also said that despite challenges related to “the persistent contraction in printed pages, declining demand for printer equipment and supplies in most regions, and intense competition,” Lexmark’s EBITDA and free cash flow could continue to rebound after a significant drop in 2017.

Back in 1Q18, the 7.125% notes traded down to the low 60s, according to MarketAxess. The notes rebounded incrementally over the course of the year.

Lexmark and UBS did not respond to requests for comment.

2019 Debtwire