Mergers, but No Mania

Private-equity deals add lots of leverage to companies, and sometimes the buyers turn around deals to make a quick buck -- without having added value and expertise.

If the deal goes through, TXU's ratio of debt-to-cash flow will jump to 7 times from 2.3 times, says Greg Peters, U.S. credit strategist at Morgan Stanley. The average ratio of debt to cash flow for an LBO has risen to 9 times, from 6 times in 2001, says Peters. Debt ratios don't matter so much for equity shareholders when they collect the windfall of a buyout, which boast a long-term average of 25% premium.

But can there be too much of a good thing? Tony Crescenzi, chief fixed-income strategist at Miller Tabak and a RealMoney.com contributor, wrote Monday that the pace of commercial and industrial loans is slowing; that can be a leading indicator "that businesses might be losing confidence in the economic expansion."

Companies may be losing confidence, choosing not to invest in growth, and would rather buy back stock, even though most of their balance sheets are in good condition after refinancing debt amid historically low interest rates. Are these companies just waiting for a buyout?

The battle between radio broadcaster Clear Channel Communications'(CCU Quote) shareholders and the private equity consortium that wants to take it private for $18.7 billion is telling, as The Wall Street Journal recently noted.