U.S. companies are finally listening to stock and bond investors that have been pressing corporations to cut their debt loads.
General Electric Co. is selling its biopharmaceutical business to Danaher Corp. for more than $21 billion, and using the money to pay down borrowings. Kraft Heinz Co. said last week it was slashing its dividend and using the proceeds of asset sales to reduce its liabilities.
Randall Stephenson, AT&T’s chief executive officer, said last month that the company’s top priority in 2019 is to lower its debt. Plans like these are good news for bondholders who have spent years watching these companies borrow ever more to finance moves like acquisitions that are designed to boost share prices, said Brian Kennedy, a senior portfolio manager at Loomis Sayles & Co.
“They’re in credit repair mode and going full force at this,” said Kennedy, whose firm managed around $250 billion at the end of December.
The steps that companies are taking could mean that the credit meltdown that many banks and investors are bracing for — JPMorgan Chase & Co. said on Tuesday that its lending growth should slow as a recession grows more likely — will be relatively tame. Investors have grown more confident that any credit downturn will be mild, with U.S. junk bonds on track for their best performance for the first two months of a year since 2001.
Stock and bond investors often pressure a company in different directions: equity money managers usually want more risk taking and borrowing to improve profit growth. Debt investors typically press for more measured growth and fewer share buybacks, to ensure that cash flow remains strong relative to debt obligations. But that’s changing, said Tom Murphy, head of investment-grade credit at Columbia Threadneedle Investments, which oversees around $431 billion of assets.
“Now the interests are much more aligned,” Murphy said. “It’s about generating profitable growth, not growth for growth’s sake.”