After judiciously paying down debt and strengthening balance sheets from 2009 to 2011, US corporations have begun to once again increase leverage, causing credit fundamentals to deteriorate for the first time in 4 years. According to Barclays Capital, leverage of investment grade corporations as measured by Debt/EBITDA (EBITDA is a proxy for cash flow) stands at 1.86x as of 9/30/12. This is up sharply from 1.72x this time last year, and is approaching levels seen just prior to the 2008 financial crisis. The jump in leverage is caused both by massive new debt issuance this year as corporations take advantage of low borrowing costs, and by slowing earnings growth (which slows EBITDA growth). This trend, combined with corporations now scaling back on 2013 capital spending plans in favor of more shareholder friendly actions such as stock buybacks, is causing us to move out of many corporate bond names in favor of other sectors such as taxable municipals. The corporates we do own for clients are bucking the trend of leverage increases, and we will continue to watch each of the credits we follow closely as this credit cycle evolves.