Expedia slashes buyback

The cost of raising money in the junk bond market continued to surge Monday, spurring online travel firm Expedia Inc. to sharply scale back plans to borrow money to buy back stock.

Also Monday, Allison Transmission, a General Motors Corp. unit that makes automatic transmissions for trucks and buses, postponed a sale of $3.5 billion of loans, said Leveraged Commentary & Data, a Standard & Poor’s publication. The loans would have helped pay for the unit’s $5.6-billion purchase by buyout firms Carlyle Group and Onex Corp.

In recent weeks, deepening losses in the market for bonds backed by sub-prime mortgages have made investors increasingly reluctant to buy other high-risk securities, including junk bonds -- debt of companies considered below investment grade.

The sudden aversion to risk has forced companies to pay higher yields to issue bonds, or to cancel their borrowing plans.

The average yield on an index of 100 junk bonds tracked by KDP Investment Advisors jumped to 8.24% on Monday, up from 8.12% on Friday and the highest since June 2006. The yield was 7.13% at the end of May.

The price of a bond and its yield move in opposite directions.

Since mid-June at least six companies have pulled junk bond sales. This month U.S. companies have sold just $708 million of junk bonds, the slowest pace for any July since 1994, according to Dealogic.

Expedia on Monday said it would use its existing credit lines to buy back a maximum of 25 million shares for $27.50 to $30 a share, or a total of about $720 million. In June the company had said it would buy as many as 116.7 million shares, or more than one-third of those outstanding, in the same price range, for a total of about $3.35 billion.

Expedia’s shares slumped $2.68, or 9.1%, to $26.71. The company’s shares fell even though Expedia also said it expected to report that second-quarter revenue exceeded Wall Street’s estimates.