Hi, Please find below the article on dividend and questions to answer: Report Information from ProQuest April 16 2015 20:42 John B. Coleman Library Table of contents 1. Borrowing for Dividends Raises Worries Document 1 of 1 Borrowing for Dividends Raises Worries Author: Rappaport, Liz ProQuest document link Abstract: Sean Maroney, director of investor relations at TransDigm, says the "stability of our business, high profit margins and consistent cash flow" give the company "the ability to support this level of leverage." Links: Base URL to Journal Linker: , Click here to order from Interlibrary Loan Illiad Full text: Corrections & Amplifications Dex Media Inc. borrowed money in 2003 to pay a dividend to its private-equity owners, including Carlyle Group and Welsh, Carson, Anderson & Stowe. A Monday Money & Investing article incorrectly identified Dex Media's private-equity sponsors as Thomas H. Lee Partners, Bain Capital and funds managed by Blackstone Group. (WSJ October 6, 2009) Rock-bottom interest rates and thawed credit markets are emboldening some companies to use bond-sale proceeds to go on the offensive, even if that means rewarding shareholders at the expense of bondholders. The nascent trend is controversial because corporate borrowers are sinking themselves deeper into debt to pay out special dividends, buy back stock or finance acquisitions. While such moves were all the rage during the credit boom, most corporate-bond offerings during the recession have been used to reduce debt or stockpile cash. Eric Felder, global head of credit trading at Barclays Capital, says the lure of low rates and companies' stables of cash increases "the risk of non-bondholder friendly events." Last week's sale of $425 million of bonds by aircraft-parts manufacturer TransDigm Group Inc. is one of the back-to-the-past corporate-bond deals causing concern among some analysts. More than $360 million of the proceeds will be used to pay a special cash dividend to shareholders and management of the Cleveland company. The added debt increased TransDigm's borrowings to 4.3 times its earnings before interest and taxes, compared with 3.1 times before last week's deal. The expected dividend of $7.50 to $7.70 a share is equal to nearly all of the net income that TransDigm reported since the end of fiscal 2003, according to Moody's Investors Service. Moody's said the dividend "illustrates the company's aggressive financial policy." Moody's gave the new debt a junk rating of B3, even though the ratings firm said TransDigm's "strong operating performance will enable the company to service the increased debt level." Sean Maroney, director of investor relations at TransDigm, says the "stability of our business, high profit margins and consistent cash flow" give the company "the ability to support this level of leverage." Borrowing from bondholders to pay shareholder dividends is "a hallmark of an earlier credit era," Jeffrey Rosenberg, head of credit strate.

1. Hi,
Please find below the article on dividend and questions to
answer:
Report Information from ProQuest
April 16 2015 20:42
John B. Coleman Library
Table of contents
1. Borrowing for Dividends Raises Worries
Document 1 of 1
Borrowing for Dividends Raises Worries
Author:
Rappaport, Liz
ProQuest document link
Abstract:
Sean Maroney, director of investor relations at TransDigm, says
the "stability of our business, high profit margins and consistent
cash flow" give the company "the ability to support this level of
leverage."
Links:
Base URL to Journal Linker:
,
Click here to order from Interlibrary Loan Illiad
Full text:
Corrections & Amplifications
Dex Media Inc. borrowed money in 2003 to pay a dividend to
its private-equity owners, including Carlyle Group and Welsh,
Carson, Anderson & Stowe. A Monday Money & Investing

2. article incorrectly identified Dex Media's private-equity
sponsors as Thomas H. Lee Partners, Bain Capital and funds
managed by Blackstone Group.
(WSJ October 6, 2009)
Rock-bottom interest rates and thawed credit markets are
emboldening some companies to use bond-sale proceeds to go
on the offensive, even if that means rewarding shareholders at
the expense of bondholders.
The nascent trend is controversial because corporate borrowers
are sinking themselves deeper into debt to pay out special
dividends, buy back stock or finance acquisitions. While such
moves were all the rage during the credit boom, most corporate-
bond offerings during the recession have been used to reduce
debt or stockpile cash.
Eric Felder, global head of credit trading at Barclays Capital,
says the lure of low rates and companies' stables of cash
increases "the risk of non-bondholder friendly events."
Last week's sale of $425 million of bonds by aircraft-parts
manufacturer TransDigm Group Inc. is one of the back-to-the-
past corporate-bond deals causing concern among some
analysts. More than $360 million of the proceeds will be used to
pay a special cash dividend to shareholders and management of
the Cleveland company.
The added debt increased TransDigm's borrowings to 4.3 times
its earnings before interest and taxes, compared with 3.1 times
before last week's deal. The expected dividend of $7.50 to $7.70
a share is equal to nearly all of the net income that TransDigm
reported since the end of fiscal 2003, according to Moody's
Investors Service.
Moody's said the dividend "illustrates the company's aggressive
financial policy." Moody's gave the new debt a junk rating of
B3, even though the ratings firm said TransDigm's "strong
operating performance will enable the company to service the
increased debt level."
Sean Maroney, director of investor relations at TransDigm, says
the "stability of our business, high profit margins and consistent

3. cash flow" give the company "the ability to support this level of
leverage."
Borrowing from bondholders to pay shareholder dividends is "a
hallmark of an earlier credit era," Jeffrey Rosenberg, head of
credit strategy at Bank of America Merrill Lynch, wrote in a
report Friday. Such deals were popular in 2003 and 2004, the
last time the Federal Reserve lowered its benchmark interest
rate to historically low levels, keeping it at 1% for more than a
year.
Companies like Dex Media Inc. took on debt to pay dividends to
its private-equity owners, including Thomas H. Lee Partners,
Bain Capital and funds managed by Blackstone Group, before
taking the companies public. Dex Media filed for bankruptcy
earlier this year under a mountain of debt.
With the federal-funds rate at 0% for nine months now and
confidence returning to the stock and debt markets, investors
have been driven to take on more risk. That is flooding the
corporate-bond market with cash. Investors poured $43 billion
into investment-grade corporate-bond funds in the second
quarter and nearly $40 billion in the third quarter -- almost
double previous peak quarters, according to Lipper AMG Data
Services.
The wave of buying drove down borrowing costs for the average
highly rated corporation to about 5%, according to Merrill, a
level not seen since 2005. In the heat of the crisis last October,
such rates averaged 9%. Through the end of September, more
than 1,000 high-rated companies borrowed a record $860
billion, according to Dealogic.
In July, Intel Corp. sold $1.75 billion of convertible bonds,
planning to use $1.5 billion of the proceeds to buy back shares.
A spokesman for Intel declined to comment.
The computer-chip giant has a strong credit rating of single-A,
so it doesn't carry a burdensome debt load. Still, the deal raised
eyebrows among some analysts and investors, who say floating
debt to buy back stock could become more common as
companies regain confidence.

4. And as merger-and-acquisition activity revs up, the cheaper cost
of debt compared with equity is tempting companies to use bond
sales as a deal-making war chest.
Analysts are watching Kraft Foods Inc. in anticipation that the
company would finance its proposed purchase of U.K.
chocolate, candy and chewing gum maker Cadbury PLC by
raising tons of debt. Last month's unsolicited bid by Kraft was
then valued at about $16.7 billion, but it could be weeks before
Kraft submits a formal offer.
Three major credit-ratings agencies have warned Kraft that they
could slash the company's debt ratings if the company reaches a
deal agreement with Cadbury. At the current offering price,
Kraft would need to shell out at least $6 billion in cash, much
of it likely from the debt markets, according to corporate-bond
research firm Gimme Credit.
"Kraft is committed to maintaining an investment-grade rating,"
a Kraft spokesman said, declining to comment further.
So far in 2009, returns to high-grade bond investors are 19%,
according to Merrill. "We've seen a feeding frenzy" because of
low interest rates, says Kathleen Gaffney, portfolio manager at
Loomis, Sayles & Co. She sold some bonds recently to take
profits from the rally. Loomis Sayles wants to have cash on the
sidelines in case the Fed raises rates soon or Treasury bonds
sell off.
Credit: By Liz Rappaport
Subject:
Dividends; Stock prices; Private equity; Securities buybacks;
Investors; Investments; Convertible bonds; Corporate debt
Location:
United States--US
Classification:
9190: United States; 3100: Capital & debt management
Publication title:
Wall Street Journal, Eastern edition

5. Pages:
C.1
Publication year:
2009
Publication date:
Oct 5, 2009
Publisher:
Dow Jones & Company Inc
Place of publication:
New York, N.Y.
Country of publication:
United States
Publication subject:
Business And Economics--Banking And Finance
ISSN:
00999660
Source type:
Newspapers
Language of publication:
English
Document type:
News
ProQuest document ID:
399143798
Document URL:
http://ezproxy.pvamu.edu/login?url=http://search.proquest.com/
docview/399143798?accountid=7062
Copyright:
(c) 2009 Dow Jones & Company, Inc. Reproduced with
permission of copyright owner. Further reproduction or
distribution is prohibited without permission.
Last updated:
2012-07-10
Database:
ABI/INFORM Complete
Contact ProQuest

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Terms and Conditions
Questions:
1. Why are conditions currently favorable for firms to issue debt
and pay out the proceeds to stockholders?
2. What are dangerous impacts of issuing additional debt
mentioned in the article?
3. TransDigm used the proceeds of their debt issue to pay a one-
time dividend while Intel used the proceeds to repurchase
shares. How does a repurchase differ from a one-time dividend?
Why do you think the two firms chose different approaches to
distributing cash to shareholders?
Please let me know if you have any questions. Thanks
kind regards....Owanaba