Lowered debt doesn't spur investing.Like homeowners who have refinanced their mortgages over the past year or two, L.A.'s largest public companies have been restructuring their debt burdens to take advantage of lower interest rates. It's been a boon to the companies, helping them improve profitability and cash flows at a time when the business environment isn't well suited for growth. But unlike consumers, who have used that extra cash to buy new cars or washing machines to keep the economy going, businesses have been stingier. Instead, they're buying back shares or increasing dividends--actions that don't bode well for growth. Some experts believe the reluctance to invest at a time when interest payments are falling as much as 30 percent or 40 percent at many companies is a bad sign for the economy. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. an examination of corporate debt by Duff & Phelps LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control , L.A.'s 20 largest public companies saved a total of $129.3 million in lower interest payments in the second quarter of 2003, compared with the like year-ago period. Lower interest rates have multiplied the impact of lower debt loads, which have come down the past two years. The total debt carried by the 20 largest publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. in Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. (measured by market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. ) fell by 0.2 percent from June 2002 to June 2003, to $65.67 billion, according to Duff & Phelps. Being frugal isn't necessarily a bad thing, at least after gorging on debt like many companies did in the late 1990s. Corporate borrowings hit a peak in 2001 at $458.7 billion, according to a recent report by Lehman Brothers Lehman Brothers Holdings Inc. (NYSE: LEH), founded in 1850, is a diversified, global financial services firm. It is a participant in investment banking, equity and fixed income sales, research and trading, investment management, private equity, and private banking. . But in the past two years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time amount of new debt issued by U.S. companies in the form of investment grade corporate bonds has plummeted to just $147.6 billion, the lowest level in five years. "It's certainly healthy for a lot of these companies to get themselves in a position where they're not overleveraged," said Michael Fishman, executive vice president at Wells Fargo Wells Fargo armored carriers of bullion. [Am. Hist.: Brewer Dictionary, 1147] See : Protectiveness Wells Fargo company that handled express service to western states; often robbed. [Am. Hist. Foothill, which lends to mid-size companies. "But if they want to grow again they will have to start spending money on capital expenditures." Some companies have put their cash to work instead by repurchasing stock at relatively high prices rather than paying down debt. Joseph Marinucci, a fixed income analyst at Standard & Poor's, has been critical of Health Net Inc., the Woodland Hills-based holding company for managed care provider Health Net of California. Marinucci has suggested that the company cut back on the dividend payments that its operating units, which are not well capitalized, make to the unregulated parent company. Despite a decrease in overall debt load--to $398.9 million in the June quarter from $518.8 million one year earlier--Health Net has a credit rating that is one notch above junk bond junk bond, a bond that involves greater than usual risk as an investment and pays a relatively high rate of interest, typically issued by a company lacking an established earnings history or having a questionable credit history. status. An equity infusion to the firm's operating units would go far toward a higher rating, Marinucci contends. Instead, Health Net's board authorized a $200 million stock buyback Stock buyback A corporation's purchase of its own outstanding stock, usually in order to raise the company's earnings per share. stock buyback See buyback. program. David Olson, senior vice president of investor relations Investor relations The process by which the corporation communicates with its investors. , said "the balance sheet is stronger than it's been in a long time because we've paid off debt over the last several years." He pointed out that S&P has improved its outlook on Health Net's debt as a result. Others that have pared down debt in the past year include Mattel Inc., down 34.8 percent, Public Storage Inc. (12.6 percent) and Jacobs Engineering Group Jacobs Engineering Group Inc. (NYSE: JEC), a publicly traded company with annual revenues approaching $7 billion, provides professional technical services. Headquartered in Pasadena, CA, Jacobs offers support to industrial, commercial, and government clients across multiple (70.8 percent). Last week, Hilton Hotels
A legal commitment in which a bank promises to lend a customer up to a specified maximum amount during a specified period. revolving credit agreement See line of credit. that it said it would use to pay back some of its long term debt. Two companies that have bucked the trend are defense contractor Noun 1. defense contractor - a contractor concerned with the development and manufacture of systems of defense armed forces, armed services, military, military machine, war machine - the military forces of a nation; "their military is the largest in the region"; Northrop Grumman Northrop Grumman Corporation (NYSE: NOC) is an aerospace and defense conglomerate that is the result of the 1994 purchase of Grumman by Northrop. The company is the third largest defense contractor for the U.S. Corp. and satellite firm Hughes Electronics Corp., a unit of General Motors Corp. Northrop, based in Los Angeles, has been encouraged to expand by fattening fat·ten v. fat·tened, fat·ten·ing, fat·tens v.tr. 1. To make plump or fat. 2. To fertilize (land). 3. government spending Government spending or government expenditure consists of government purchases, which can be financed by seigniorage, taxes, or government borrowing. It is considered to be one of the major components of gross domestic product. on defense. It also ratcheted up borrowings and issued 184 million shares of stock to fund its purchase of TRW TRW The Real World (TV reality show) TRW The Right Way TRW Tactical Reconnaissance Wing TRW The Retriever Weekly (University of Maryland, Baltimore, MD) TRW Thompson Ramo Wooldridge Inc Inc. last year. Hughes' DirectTV Holdings LLC unit raised nearly $3 billion in new debt this year, using some of the proceeds to repay older debt and some to fund its business. "We raised some extra debt because the markets are so good and we felt like striking while the market was hot," said Martin Sheehan, a senior manager in investor relations for Hughes. Public Storage had a 70 percent drop in interest payments in the past year to $400,000 in the second quarter, down from $1.2 million. The Glendale company plans a $6 million stock repurchase plan stock repurchase plan 1. See buyback. 2. See self-tender. , but its outlook has been cautious, as renters became homebuyers in the past couple of years and lessened their demand for storage rentals. Bankers, too, have bad to change their attitudes. Over the past few years, many have urged companies to cut their bloated debt levels to shore up their balance sheets. But commercial banks are now worried because as companies pay off existing debt, it becomes more difficult to replace the volume of loans, particularly in a low interest rate environment. As overall borrowings drop, it puts pressure on lenders that want to grow their portfolios. "You could also read the tea leaves as indicative that companies are more cautious about floating debt and are deferring acquisitions and capital expenditures because they're not confident about a recovery," said Nehama Jacobs, treasurer of the Los Angeles chapter of the Association for Corporate Growth.
Refinance Boom
Debt at L.A.'s largest companies held steady, but quarterly
interest payments fell.
Tot. Deb Tot. Debt
Company 6/03 6102 Change
Amgen Inc. $3,086.7 $3,154.8 -2.2%
Walt Disney Co. 13,911 15,249 -8.8
Hughes Electronics Corp. 5,008.80 3,480 +43.9
Northrop Grumman Corp. 6,582 5,782 +13.8
Occidental Petroleum Corp. 4,547 4,090 +11.2
Wellpoint Health Networks Inc. 1,163.5 1,152 +1.1
Mattel Inc. 815.7 1,251.3 -34.8
Univision Communications Inc. 1,447.7 1,497 -3.3
Computer Sciences Corp. 2,479.7 2,340.5 +5.9
Unocal Corp. 3,498 3,119 +12.2
Edison International Corp. 15,259 16,312 -6.5
Avery Dennison Corp. 1,258.9 1,110 +13.4
Hilton Hotels Corp. 4,430 4,824 -8.2
Public Storage Inc. 106.9 122.4 -12.6
Health Net Inc. 398.9 518.8 -23.1
Metro-Goldwyn-Mayer Inc. 1,264.2 1,324.4 -4.5
KB Home (1) 1,537.7 1,481.9 +3.8
Jacobs Engineering Group Inc. 34.5 118.1 -70.8
99 Cents Only Stores 1.6 1.7 -5.6
Total $65,658.3 $65,776.9 -0.2%
Interest Interest
Company Pmt. 5/03 Pmt.6/02 Change
Amgen Inc. $8.8 $12.7 -30%
Walt Disney Co. 168 185 -9.1
Hughes Electronics Corp. 84.2 121.4 -30.6
Northrop Grumman Corp. 119 105 +13.3
Occidental Petroleum Corp. 59 78 -24.4
Wellpoint Health Networks Inc. 12.7 19.1 -33.5
Mattel Inc. 18.2 29.1 -37.4
Univision Communications Inc. 18.6 22.2 -16.1
Computer Sciences Corp. 43.1 34.3 +25.7
Unocal Corp. 36 43 -16.3
Edison International Corp. 315 341 -7.6
Avery Dennison Corp. 14.5 9.7 +4.9
Hilton Hotels Corp. 77 92 -16.3
Public Storage Inc. 0.4 1.2 -69.4
Health Net Inc. 9.8 10.3 -5.5
Metro-Goldwyn-Mayer Inc. 18.9 26.5 -28.9
KB Home (1) 5.6 6.3 -12.5
Jacobs Engineering Group Inc. 0.6 1.7 -67.2
99 Cents Only Stores 0 0 0
Total $1,009.3 $1,138.6 -11.4%
1-Data is for quarterly periods ended in May 2002 and 2003.
Mortgage lender Countrywide Financial Corp., the 7th largest
company in the LABJ 200 by market capitalization, was excluded
from the list because debt factors are measured differently
for financial companies. Dollar amounts in millions.
Sources: Duff & Phelps LLC, Bloomberg News
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