John Malone: Serious Distress For Companies Ignoring Prudent Leverage

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During his recent interview with Squawk on the Street, John Malone discusses the impact of interest rates on companies that have used debt leverage to boost up equity returns. He predicts potential distress in the industry for companies that did not leverage prudently. Here’s an excerpt from the interview:

Malone: Well, I tell all my guys hire for longer. Look at your balance sheets.

Make sure you’re bulletproof on your balance sheets. You know, you’re gonna take a hit on your equity valuations, because every one of my companies has used debt leverage to boost up equity returns.

And so, it doesn’t mean that that’s a bad strategy particularly if you’ve been able to lock in long fixed rates.

Look at your balance sheet for opportunities to take advantage of the fact that you do have long fixed rates. Maybe you deleverage now at a discount, you know, capital allocation becomes very important in terms of you know, is there growth in this environment to a large degree?

The businesses I’m in are maturing in their industries. And so growth will slow or has slowed. There’s more competition because of cheap capital bringing in new competitors and new technologies.

Faber: Right, so previously cheap capital.

MALONE: And so and we’re also seeing the period but I think we’re going to see very serious distress in our industry by companies that didn’t leverage prudently.

You can find the entire transcript of the interview here:

John Malone – Squawk on the Street

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