Sony to sell $1.9bn of conv bonds, stock down 10% in early trading.

[Slimebeast]

Akvod said:

Slimebeast said:

DirtyP2002 said:
@slimebeast,

leverage effect.

http://news.morningstar.com/classroom2/course.asp?docId=2934&page=3&CN=com

Wow, that was too complicated for me, at least 3 AM in the morning.

Sounds though that there was a logical explanation to my question of why most companies tend to keep dept instead of paying it off as quickly as possible. I just need to understand more exactly the tricks and motivation. I'll read on further on the site you linked to.

That's a bad explanation though. There's no reason to use higher leverage in order to increase ROE or EPS because that comes at the price of making equity riskier.

http://friendly-finance.blogspot.com/2009/12/homemade-leverage.html

Again, the main reason why a firm would want to leverage is to get the benefits of the debt tax shield. The interest you pay out is deductible.

Unfortunately, Sony has no taxable income to shield, and even if they did recently, they have so much NOL's they'll use that first.

 

You guys have to consider the fact that Sony is expecting lots of cash inflow from PS4. They have a compelling case to refinance their debt and to survive into the couple of years.

So even if I didn't understand half of what was written in the posts above I was on the right track, that companies can benefit from having debt.

So loans/debt is not always used just for investment, it's often also used as an instrument to decrease taxes.