Spinoffs And Bondholders

In 2014, there have been 57 spinoffs by nonfinancial companies, an increase from 44 and 33 in 2013 and 2012, respectively. Many spinoffs are done for the benefit of stockholders. On average, a company that undertakes a spinoff sees its EBITDA increase by one percent between the announcement and the end of the next fiscal year. But the news for bondholders isn't as good. For one-third of the spinoffs since August 1, 2013, S&P has lowered the credit rating or put the company on a negative creditwatch. S&P notes that in spinoffs, there is often a decrease in cash flow without a corresponding reduction in debt. And, in the case of Symantec, S&P has the company on a negative creditwatch due to diminished business diversity (read diversification, or the coinsurance effect.)