For some companies, debt repayments are taking priority over innovation and other operational initiatives.

Aside from zombie companies going bankrupt as a result of the Fed holding rates higher for longer, there is an entire class of Technology companies that will continue to suffer as a result of higher interest rates for longer. Take SS&C Technologies for example. Through the first six months of the year, SS&C (ticker: SSNC), has reported Interest Expense of $230 million and Total Debt Payments of $345 million versus Cash from Operations of $584 million. That does not leave much room for acquisitions nor Product Development. That is to say nothing of the $3.7 billion in term loans that SSNC has coming due on April 16th 2025. SSNC’s debt load has crowded out innovation – whether it be of the organic or acquired sort – as well as other operational priorities.

SSNC isn’t the only company that gorged on cheap debt. Many Technology companies have debt that is due to roll over at higher rates which will cause those companies to prioritize around debt repayments rather than investing in the business. Some of this rollover activity will occur in 2024, although 2025 seems to be the year where rollovers occur en masse. Companies that have favorable balance sheets either because of their enormous size (take Microsoft for example), or because of an aversion to debt, are poised to take market share from those companies whose first priority is to pay down debt versus reinvesting in the business.

In the case of SSNC, this mess could have been avoided when the stock was at $80. I would be looking for a buyer were I Bill Stone.

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