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My Two Cents

Leverage and the Consumer

Chris Farrell Oct 28, 2007

There is growing concern about consumer spending. High-yield expert Martin Fridson has put together an intriguing chart that lists junk bond companies highly sensitive to consumer spending. He then ranks them by a leverage ratio, a simple gauge of a company’s financial wiggle room. Fridson believes that a “major corporate failure in the consumer sector could have wide repercussions for the high yield market as a whole.”

I’d keep a close watch on these companies.

This list ranks 26 issuers by their by leverage ratio, that is, total debt divided by annual EBITDA (earnings before interest, taxes and depreciation).

Leverage Ratios of Consumer-Sensitive Companies

Rank Issuer Industry Leverage Ratio

1 Ford Motor Automotive 12.81
2 Trump Ent. Gaming 9.98
3 Six Flags Leisure 9.11
4 Toys “R” Us Non-Food & Drug Retailers 8.97
5 Rite Aid Food & Drug Retailers 8.69
6 Dole Foods Food-Wholesale 8.30
7 Station Casinos Gaming 6.72
8 Constellation Brands Beverage 6.40
9 Smithfield Foods Food-Wholesale 5.30
10 Harrah’s Operating Gaming 4.92
11 Goodyear Tire & Rubber Auto Parts 4.85
12 Wynn Las Vegas Gaming 4.82
13 Boston Scientific Pharmaceuticals 4.62
14 Jostens Holdings Consumer Products 4.41
15 Royal Caribbean Cruises Leisure 4.39
16 TRW Automotive Auto Parts 4.22
17 Host Marriott Hotels 4.13
18 Mohegan Tribal Gaming Gaming 3.65
19 Supervalu Food & Drug Retailers 3.31
20 Lear Auto Parts 2.95
21 Tyson Foods Food-Wholesale 2.90
22 MGM Mirage Gaming 2.74
23 General Motors Automotive 2.46
24 Levi Strauss Apparel/Textiles 2.28
25 Delhaize America Food & Drug Retailers 1.85

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