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Leveraged finance: Firms fend off pressure to releverage – for now

Few companies are pursuing leveraged share buybacks, but pressure from activist investors is putting the issue back on the agenda and there could be a lot more deals in the next 12 months.

The owners of Phelps Dodge copper mining company are under pressure to return money to investors

At a time when hedge funds are putting increasing pressure on companies to accelerate share buybacks, and private equity firms are using cheap debt to go after bigger corporate buyout targets than ever before, it’s tempting to conclude that companies are being forced to increase leverage in order to return cash to shareholders before someone else decides to do it for them. However, while leveraged share buybacks could become a lot more common in 12 months’ time, commentators say there’s little evidence to suggest that the technique is taking off yet. Amgen

Although the number of companies buying back shares using cash on the balance sheet is increasing, analysts say, there have only been a few cases where companies have increased debt specifically to buy back shares. In February, biotech company Amgen issued one $2.5 billion 2011 convertible bond and one $2.5 billion 2013 convertible. Some $3 billion of the proceeds were to be used buying back common shares and most of the rest was used to buy protection against potential future dilution to Amgen stock should the notes be converted.

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