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I'm asking this question as an investor of stocks in the U.S.

Equity and debt are two different things. Sometimes, a company's stock does very poorly for reasons completely unrelated to its operational excellence (Apple, during 2012, comes to mind -- when its stock crashed despite record revenues and profits).

Still, apparently, if a firm's stock is doing really well, it becomes easier for the company to raise debt. It is able to borrow more, at lower interest rates, whether for the short or long term. And vice versa.

  1. Is this correct?
  2. If yes, then why? (i.e., why do debt-issuers care about stock price?)

Update: Apparently, the answer to 1. is "yes":

banks take a company's share price into account when deciding whether to extend credit and at what interest rate.

(Source)

  • Do you have an example of a company that had a great stock price but lousy financials so that the stock alone was doing well? I suspect other factors such a cash flow and assets may change the credit rating that allows for better borrowing terms here. – JB King Nov 10 '15 at 20:17
  • Ever heard of convertible debt? That can be another case here to consider as convertibles would be dependent on the stock price as that is the intended reward, consider when Berkshire Hathaway had a negative interest rate debt instrument offered years ago. – JB King Nov 10 '15 at 20:38
  • Although it might look like stock price affects ability to raise debt it is mostly cash flow and risk - it is just how stocks work that companies with good cash flow and low risk have good stock prices. Convertible debt still is issued on cash flow and risk - not stock price itself. – Ross Nov 10 '15 at 21:15
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As JB hints, it is likely due to superior or improving, fundamentals. If the fundamentals of a company improve then its ability to repay loans improves. If its ability to repay improves then more sources of cash become willing to lend to the company. Also if fundamentals are improving then more sources are willing to buy and/or hold the stock.

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