CONDUENT Inc 10-Q

ITEM 1A — RISK FACTORS Reference is made to the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020. Below are additions to our risk factors as previously reported in our 2020 Annual Report. The terms of our indebtedness may restrict our current and future operations, particularly our ability to incur debt that we may need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and governmental regulations. The terms of our indebtedness include a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests. These may restrict our and our subsidiaries’ ability to take some or all of the following actions: • incur or guarantee additional indebtedness or sell disqualified or preferred stock; • pay dividends on, make distributions in respect of, repurchase or redeem capital stock; • make investments or acquisitions; • sell, transfer or otherwise dispose of certain assets; • create liens; • enter into sale/leaseback transactions; • enter into agreements restricting the ability to pay dividends or make other intercompany transfers; • consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets; • enter into transactions with affiliates; • prepay, repurchase or redeem certain kinds of indebtedness; • issue or sell stock of our subsidiaries; and/or • significantly change the nature of our business. As a result of all of these restrictions, we may be: • limited in how we conduct our business and pursue our strategy; • unable to raise additional debt financing to operate during general economic or business downturns; or • unable to compete effectively or to take advantage of new business opportunities. A breach of any of the restrictive covenants, if applicable, could result in an event of default under the terms of this indebtedness. If an event of default occurs, the lenders would have the right to accelerate the repayment of such debt and the event of default or acceleration may result in the acceleration of the repayment of any other of our debt to which a cross-default or cross-acceleration provision applies. Furthermore, under this indebtedness we have pledged our assets as collateral as security for our repayment obligations. If we were unable to repay any amount of this indebtedness when due and payable, the lenders could proceed against the collateral that secures this indebtedness. In the event our creditors accelerate the repayment of our borrowings, we may not have sufficient assets to repay such indebtedness, which could materially adversely affect our results of operations and financial condition. CNDT Q3 2021 Form 10-Q 36 Table of Contents In addition, our credit facility bears interest at a rate that varies depending on LIBOR. On July 27, 2017, the UK's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. The announcement indicates that LIBOR will not continue to exist on the current basis. More recently, on March 5, 2021 the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative. Specifically, this will occur immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and immediately after June 30, 2023, in the case of the remaining US dollar settings. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, announced a recommendation to replace U.S. dollar LIBOR with a new index calculated based on overnight transactions under short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing Rate ("SOFR"). However, there is currently no definitive successor reference rate to LIBOR and various industry organizations are still working to develop workable transition mechanisms and whether or not SOFR attains market traction as a LIBOR replacement tool remains in question at this time. LIBOR related changes may negatively impact costs of borrowings under our credit facilities, which could have an adverse effect on our results of operations.