Increased Share Repurchases Weakening US Issuer Credit Profiles, Financial Flexibility
US investment-grade debt issuers have accelerated their share repurchase programs, generally leading to weakening credit profiles and limiting financial flexibility should market conditions weaken, according to a Fitch Ratings report. Since the beginning of 2011, Fitch has taken negative rating actions on 12 issuers due in part to share repurchases. This compares [...]

US investment-grade debt issuers have accelerated their share repurchase programs, generally leading to weakening credit profiles and limiting financial flexibility should market conditions weaken, according to a Fitch Ratings report.

Since the beginning of 2011, Fitch has taken negative rating actions on 12 issuers due in part to share repurchases. This compares with just three negative actions taken in 2010. All but one of the 12 issuers was rated investment grade, and most of the affected companies were in the ‘A’ and ‘BBB’ categories.

The growing levels of share repurchases were financed not only with free-cash-flow, but also with a larger dose of borrowings.

The increase in share repurchase activity reflects a willingness on the part of management teams to move down the credit scale, as well as the favorable market conditions.

Fitch notes that these actions leave companies with less flexibility in the event of another economic downturn, brought on, for example, by a deepening euro zone crisis or an oil price shock.

Fitch expects further aggressive share repurchase activity in 2012 as borrowing rates continue to move lower, even as stock prices have recovered from October 2011 lows. This will likely continue until economic growth accelerates, prompting companies to shift resources toward growth initiatives or M&A activity.

For details, see Buybacks Up, Ratings Down

Technorati Tags: share repurchases, stock-buybacks

Stock Market XML and JSON Data API provided by FinancialContent Services, Inc.
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes.
Markets are closed on certain holidays. Stock Market Holiday List
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.
Press Release Service provided by PRConnect.
Stock quotes supplied by Six Financial
Postage Rates Bots go here