IKON Buyback Puts It on S&P Credit Watch

NEW YORK (AP) -- Rating agency Standard & Poor's said Wednesday it has placed office-supply company Ikon Office Solutions on its credit watch, with a "BB" junk bond rating.

Standard & Poor's said it was doing so in response to Ikon's decision to repurchase $500 million of its shares. IKON intends to repurchase up to $295 million of stock through an immediate offer and rest during the 2008 fiscal year.

Shares of Malvern, Pa.-based Ikon, which provides document-management systems and services, shot up on news of the stock buyback. Its shares rose $2.17 or 20.3 percent to $12.80 in morning trading. They have traded between $10.35 and $17.41 in the last year.

However, the rating agency is concerned that Ikon may have to borrow money and use up cash reserves to buy the shares. "The credit watch listing reflects our expectation that Ikon will use incremental debt financing and existing cash to finance the share repurchases, thereby increasing leverage and reducing financial flexibility," Standard & Poor's credit analyst Molly Toll-Reed said in a statement.

"We will assess the company's financial policy with respect to balancing its financial profile, shareholder returns, and strategic growth objectives before resolving the credit watch," she added.