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Corporate Credit Quality Seen Eroding as Shareholders Rewarded

Central bank efforts to make risky assets more attractive to investors are weakening credit quality among top-rated U.S. companies as they sell debt to return money to shareholders instead of spending on growth, according to Moody’s Investors Service.

Companies with investment-grade credit ratings are spending more of their cash on shareholder rewards than at any time since the 2007, Moody’s said in a report released March 27. Reluctant to commit funds to capital expenditures in a low-growth environment, companies have opted to pay for these buybacks and dividends by issuing new debt amid record-low interest rates, while a drop in free cash flow since before the financial crisis has diminished their capacity to repay these obligations.