Debt isn't top concern of investors, companies find
By Matt Krantz
USA Today
Debt has become a dirty word in many corners of the financial markets, but investors at large don't seem to be paying much attention.
While the heavy use of debt hammered Bear Stearns and several hedge funds, investors haven't exactly rewarded companies that resisted the urge to borrow when leverage was the rage in the mid-2000s.
Currently, 164 companies in the broad Standard & Poor's 1500 index, which contains companies of all sizes, have no debt, a USA Today analysis of data from S&P's Capital IQ found. Some well-known examples include tech giants Microsoft and Google.
But in terms of stock performance, prudent companies that shunned debt have gotten no reward. Debt-free companies, on average, are down 15.6 percent from the market's peak Oct. 9, versus the 12.7 percent decline of the S&P 1500 and 12.8 percent loss by the large-company S&P 500.
The companies that avoided borrowing bucked a broad trend in which the level of debt held by nonfinancial companies jumped 11.1 percent last year to $6.3 trillion, the biggest jump since the third quarter of 1999, says John Lonski, chief economist at Moody's Investors Service.
But the fact the debtless companies' stocks aren't getting a bump shows the credit crisis hasn't made investors averse to companies that borrow, Lonski says. "Investors don't care (about companies' debt levels) unless it threatens financial viability," he says. The lack of a debt-free bonus shows investors are:
While the absolute level of debt has risen, by some measures, companies have reduced their debt, says Howard Silverblatt of S&P. Nonfinancial companies in the S&P 500 hold debt 15 percent of their market value, down from 15.7 percent in 2006 and the 21.5 percent peak this decade in 2002.
