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CAPITAL MARKETS

Optimizing the capital structure: Corporate leveraging still has a long way to run

Corporates are under pressure from shareholders and private equity bidders to leverage up to boost returns. The danger is that they submit just as the economy slows. Some riskier companies are already overstretched. As the debate over the optimal corporate capital structure grows more rancorous, the good news is that most corporates are starting to pile up debt on very strong balance sheets.

High-quality issuers revive corporate hybrid market


The clocks are turning back all across the credit markets this autumn. When big LBOs, corporate M&A deals and debt-financed shareholder payouts took off at the start of this year, the bears warned about an imminent credit crunch. It hasn’t happened. Those headline leveraged deals glossed over just how strong corporate credit fundamentals had become, as earnings and margins stayed high, cash built up and corporate spending stayed modest until very recently. Yes, many companies will overextend themselves; some low-rated credits already have. And the crunch will eventually come. But as lenders remain flush with liquidity, the credit cycle clocks now say the day of reckoning might be years, not months, away. Peter Lee reports.

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VOLVO HAS TRADITIONALLY been regarded as a conservative but well run company that prudently maintained high cash balances to shelter it though downturns in the cyclical heavy truck business. That might not be good enough any more.

Over the summer, Christer Gardell, a venture capitalist, having amassed a 5% stake in Volvo’s equity, began pressing the company to return part of its Skr19 billion ($2.58



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