Consumers know how hard it is to resist borrowing money. Companies face the same temptation, if not more so, especially with rivals leveraging up and taking advantage of low-interest rate loans.
Yet, there are still 26 non-financial companies in the Standard & Poor's 500 index, including social media company Facebook, payments processor Visa and accessory seller Michael Kors that ended the first calendar quarters reporting no long-term debt.
Some of these companies might have other financial obligations, such as long-term leases for retail space or other equipment or short-term loans to be paid off within a year. But this analysis measures what accountants call long-term debt, or financial obligations due in more than a year, which leaves out short-term bridge loans that's not debt the company is planning to lean on for long. Most of the companies don't have short-term debt, either.
Resisting debt is especially difficult for companies with interest rates as low as they are now. Companies with the top credit ratings are able to borrow for just 1.5 percentage points over the rates on Treasuries with similar maturities.
That's a downright bargain if you consider that such corporate bonds have gone for 1.7 percentage points higher than Treasuries the past year and nearly 2 percentage points higher than Treasuries over the past five years.
And low rates explain, in part, why many companies are increasing their long-term debt. Companies in the S&P 500 reported a 10% increase in long-term debt in the most recent calendar quarter compared with the same year-ago period.
Making it even hard to avoid borrowing: investors are punishing companies that don't have long-term debt, at least this year so far. An equal-weighted index of the debt-free S&P 500 companies is down 0.3% this year, trailing the 4.4% gain of the S&P 500 at large.