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Bondholders Teach Shareholders Who’s Boss

Corporate America wake-up call on borrowing to fund stock buybacks: Once-acquiescent bondholders are balking at increasing leverage to reward equity owners.

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Amid the fallout of the General Electric Co. (GE) debacle, a delicate but crucial social contract between shareholders, bondholders, and corporate America is being quietly redrawn.

For a decade since the financial crisis, U.S. companies have piled up debt to fund generous equity buybacks, helping supercharge a fourfold jump in the S&P 500 Index. But as scrutiny on companies’ financial health mounts, creditors are seeking to wrestle back control and curb these balance-sheet-be-damned maneuvers.

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