(FORTUNE Magazine) – COULD IT BE that the debt crisis is overblown? The numbers are certainly staggering, and judging from the responses to FORTUNE's latest poll of big- league corporate chiefs, debt is a problem all right. But most say it's the other guy's problem, not theirs. Some 87% of the CEOs agreed that heavy corporate borrowing, now at a record $2.2 trillion for nonfinancial corporations, is bad for America's economic health. But only 17% said that their own companies' borrowing is inhibiting their competitiveness. Among that group, the forthright bosses at American Standard and Bell & Howell conceded that their debt loads made it difficult for them to execute sizable strategic acquisitions. CEOs at Scott Paper and Air Products & Chemicals said they are not spending as much as they would like for new plant and equipment. Another CEO of a large industrial corporation, requesting anonymity, reported that debt puts a damper on his R&D outlays. FORTUNE's poll was conducted by the independent opinion-research firm of Clark Martire & Bartolomeo. The respondents, 203 CEOs of FORTUNE 500 and Service 500 companies, were interviewed between March 5 and March 13. During this period, newspapers were littered with stories about debt's debris: Pan Am missed a $100 million payment to Bankers Trust, Chrysler renegotiated its credit line, McDonnell Douglas's debt was downgraded by Standard & Poor's for the third time in 13 months, and bondholders of Harcourt Brace Jovanovich -- their paper trading at 26 cents on the dollar -- pushed for better terms in the takeover by General Cinema. Perhaps responding to what they were reading, 37% of the poll's respondents said that corporate debt is a ''very big problem'' for the economy, while 50% thought it ''somewhat'' troublesome. ''We are a monument to Michael Milken,'' says Nimrod Frazer, the new CEO of Enstar Group, which -- as the former Kinder-Care Inc. and a former Drexel Burnham client -- certainly is. Healthy companies that must deal with troubled customers and suppliers are also worried. Alan Hassenfeld, CEO of toymaker Hasbro, says that some of his company's biggest customers in the Eighties were retailers that tried LBOs, with disastrous results. Among Hasbro's outlets now in Chapter 11 are Best Products, Ames Department Stores, and Hills Department Stores. The struggling Child World, second largest in toy retailing behind Toys ''R'' Us, is being taken over by two former Toys ''R'' Us executives. In response to his customers' plight, Hassenfeld has increased Hasbro's reserves against unpaid bills from $8 million to $30 million, and has added a new responsibility to his job description: credit negotiator. ''We had a good year in 1990,'' he says, ''but we had to give some of it away in the form of those increased reserves.'' CEOs who followed a prudent course over the past decade are openly gloating because they assume their leverage-loaded rivals will have to hunker down and become less competitive. The statistics don't always bear them out (see preceding story), but listen to W. W. Sprague Jr. of Savannah Foods & Industries: ''The best news anyone can get is that his competition is in the process of a leveraged buyout. These companies make fewer improvements, do less research, and are less aggressive. You know nothing good is going to happen for them for some time.'' Resisting debt's blandishments called for fortitude in the Eighties, when the economic recovery seemed as if it would roll on and on. Says Pfizer CEO Edmund T. Pratt Jr.: ''In those days I was afraid to talk about our triple-A credit rating. There was great pressure not to look like you were sitting there with a fat balance sheet. On every board I serve, investment bankers said if you're not using all your available resources to borrow, someone will come in and use them for you.'' Even so, only 42% of respondents said their companies have more debt now in their capital structures than they did five years ago. Significant leverage is a relatively new phenomenon for many FORTUNE 500 blue chips. In fact, one big blue chip, IBM, did its first major public debt issue only in 1979. Says Jerry Pearlman, CEO of Zenith Electronics: ''At the beginning of the Eighties, certain companies were clearly underleveraged. Today people realize that it's appropriate to use a level of borrowing to maximize your shareholders' return.'' He concedes that the LBO trend took debt to excess. ''But has leverage hurt our global competitiveness? I don't think so. The majority of LBOs were not in our internationally competitive industries -- certainly not in technology, aerospace, or core manufacturing- equipment businesses.'' Another reason companies began to leverage up: On an after-tax basis, debt was a lot cheaper than equity. When AA-rated companies borrow at 9.2%, the cost comes to only 6.6% after taxes; the price of equity is more than twice that. Says Dexter Baker, CEO of Air Products & Chemicals: ''You need a 14% return to satisfy your shareholders and keep up your stock price.'' The tax treatment of dividends also makes equity expensive. Most CEOs -- 58% -- said their companies are put at a competitive disadvantage by the U.S. tax structure, which allows deductions for interest payments but not for dividends. John Bryan of Sara Lee expresses the widespread view: ''All our major trading partners provide some relief from double taxation of dividends. If U.S. policy were changed, there would be less debt and more equity.'' While most corporate bosses disagree with Jerry Pearlman and say that the corporate debt load does hobble global competitiveness, a few note that foreign companies are often more in hock than their U.S. counterparts. Baker reckons that an American outfit probably needs a 2-to-1 ratio of equity to debt if it wants a respectable A rating from Standard & Poor's or Moody's. But Japanese manufacturers, which enjoyed interest rates as low as 4.5% to 5% until mid-1989, typically have balance sheets that show ratios of 1 to 1. The issue is broader than just the cost of debt. Japan's interest rates have finally risen to around the U.S. level, and Germany's are higher. From a financial perspective, the key to competitiveness is the overall ''cost of capital,'' a complex calculation that takes into account interest on debt and also the return on equity a company needs to prevent investors from selling its stock. Even on this basis, CEOs say, the U.S. still can't compete. Debt-heavy as foreign competitors may be, they can still raise equity at lower cost than can U.S. concerns. For example, price/earnings multiples in Japan, despite a 32% drop since the beginning of 1990, average about 35, compared with 17 for the Standard & Poor's 500-stock index. CEOs say that Japanese investors are willing to pay more for a dollar of earnings -- hence, accept a lower return -- because they expect to be rewarded over the long term. Says Baker: ''It's much easier to satisfy a Japanese investor.''

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