Discovery Borrowing More To Boost Buybacks

Here’s a development of interest for anyone watching media companies’ slavish interest in stock buybacks. Standard & Poor’s cut Discovery Communications’ credit rating, and Moody’s indicated it was considering doing the same, after the company said it was willing to increase its debt-to-earnings ratios higher than it previously stated so it could resume share buybacks earlier than planned.

As we wrote recently, many big media companies have been borrowing money to fund share buybacks in recent years. It’s a risky strategy, given signs that the cable channel business is eroding and the threat of credit rating downgrades, which can raise borrowing costs. In Discovery’s case, its credit rating is now one level above junk status. But buybacks boost stock prices, which is why company executives like them. Indeed, Discovery shares were up 4% Tuesday.