How does buying back stock affect a company's credit spread? Would it cause it to get smaller? Any clarification would be appreciated.
All else being equal, buying back stock would cause a company's credit spread to widen (increase). This is because a share buyback involves shrinking the firm's assets (spending cash to buy back the stock) and shrinking equity/retained earnings, while leaving the liabilities unchanged (or increasing them in the case of a leveraged buy back). This is an increase in leverage, which would leave the firm more exposed to bankruptcy (and hence credit risk).