Cheap Debt, Increased Leverage

In 2012, 369 companies increased their net debt/EBITDA ratio. As a result, the median net debt/EBITDA ratio has increased to 2.43. As the article notes, bank loan covenants typically require this ratio to remain below 5.  Companies with a particularly high ratio include Hologic (6) and Molson Coors Brewing (5.4). Although some companies saw an increase in this ratio due to increasing debt on the balance sheet, a troublesome reason for the increase in the net debt/EBITDA ratio at several companies is a decrease in EBITDA. For example, Kraft Foods saw its revenue drop by 1.7 percent and Micron Technology saw a decrease in EBITDA of 41 percent.