NEW YORK Aug. 10, 2006--Institutional investors have sought to bolster shareholder returns in recent years by pushing companies to engage in shareholder-enhancing deals, such as stock buybacks, extra dividends, LBOs, or corporate restructurings. Standard & Poor's believes that the impact of such deals on credit quality is very rarely positive, occasionally neutral, and too often negative. These conclusions are contained in a recently released report by Standard & Poor's Ratings Services entitled "Top 10 Recent Stock-Boosting Initiatives: As Shareholders Gain, Creditors Often Lose." "There is a growing appetite among corporate executives to use their balance sheets to the benefit of their shareholders," says Standard & Poor's Managing Director John Bilardello. "The resultant rise in debt and the corresponding reduction in cash supporting these obligations has been a primary factor underlying negative ratings activity." Such shareholder initiatives often depend on added leverage to get them off the ground. But the companies that issue bonds or take out bank loans to buy back shares, purchase a company (their own or some other), or provide a dividend to shareholders do not always have the financial strength to maintain their credit rating after initiating these strategies. Even if the effort to boost the stock price succeeds, everyday business pressures persist. A spike in commodity prices, the loss of a key customer, an unfavorable regulatory ruling, or an industry-changing technology can wreak havoc with carefully crafted financial plans and leave a company weakened. The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. Individuals that are not RatingsDirect subscribers may purchase a copy of the report by calling (1) 212-438-9823. |
