(FORTUNE Magazine) – SUMNER REDSTONE doesn't mince words. In 1987 the CEO of National Amusements acquired Viacom -- which includes Nickelodeon and MTV -- and piled debt of nearly $3 billion onto it. Everyone who works for Redstone, and lots of people who don't, know what he wants now: Get Viacom's debt down -- way down -- or else. At a recent junk bond conference in Greenwich, Connecticut, Redstone told several hundred Wall Street analysts, institutional investors, and executives from other companies that had issued high-yield bonds: ''This is the last conference of this kind that you will see us attending. And if you do see us again next year, we'll have a new chief financial officer.'' Although he's more outspoken than most, Redstone, 68, isn't alone. You may as well get used to the rather ungainly verb ''deleverage,'' since we'll all be reading and hearing it for years to come. Consider the findings of Indepth Data, an investment research firm in Oklahoma City: In 1986, in the midst of the takeover and LBO frenzy, all of corporate America took a mere $2.2 billion in debt off its books by way of exchange offers, tender offers, and redemptions. In 1991, as of early December, the figure was $11.2 billion -- including about $3.4 billion that was ''vaporized,'' in financial analysts' Star-Trekkish lingo, by bankruptcies (see chart). Companies have plenty of incentives to get rid of the costly debt they shouldered in the Eighties. Credit -- the lifeblood of any business, and all the more so for a growing company -- is harder to come by now that bankers have turned tightwad. The lower the ratio of debt to equity, the easier it is to refinance bank debt, borrow in the commercial paper markets, and maybe even get an upgrade from the bond-rating agencies. ''Companies aren't rushing to get rid of debt because they suddenly woke up and got religion,'' observes Louis Lowenstein, a professor of finance and law at Columbia University. ''It's because deleveraging is now inevitable. There's simply no choice anymore.'' Deleveraging takes many forms -- some familiar, some less so. Falling interest rates have inspired a stampede by corporate financial managers to restructure their balance sheets by swapping high-cost debt for cheaper obligations. Issuing stock is suddenly wildly popular, although it doesn't carry with it the tax deduction for interest payments that borrowing offers. Private placements and other innovative tactics that bring debt-free cash infusions are in vogue too. Some companies have tried, with varying degrees of success, to raise money for debt reduction by selling assets. The most common strategy now is a combination of maneuvers: Issue new equity, retire pricey old bonds and maybe float some new ones at a lower rate, and unload some assets if you can. In this, George S. Smith Jr., 43, Viacom's chief financial officer for the past four years, is fairly typical -- and Redstone seems likely to let him keep his job. Between 1987 and 1990, Viacom sold assets and paid off $600 ) million in costly bank debt. It then extended the maturities on some notes from 1991 to 1998, issued $200 million in senior subordinated debentures at a relatively comfortable 10.25%, and retired all of its 15.5% bonds. The ever lighter interest burden has let Viacom keep investing in its fastest-growing businesses. Last August, for instance, the company parted with 2.2 million shares of common stock to snatch MTV Europe from the late Robert Maxwell's sinking ship. As a result, Viacom is now so healthy that some analysts think it could be a prime candidate for acquisition if Redstone, who still owns about 75% of the stock, ever agrees to give it up. As Lowenstein argues, the urge to deleverage, however laudable, is rarely voluntary. In 1989, federal bank regulators started pressuring commercial banks and savings and loans to stop lending to companies whose bonds had fallen below investment grade because their balance sheets showed high debt- to-equity ratios. The leverage-happy Eighties left only about 400 corporations' bonds in the investment-grade category, and the so-called HLT (for highly leveraged transaction) list of the bank watchdogs now blackballs most U.S. companies. Nearly 95% of those with annual sales of more than $35 million are in the junk bond brigade. No wonder, then, that net new bank loans to nonfinancial companies dropped through the floor, from $33.1 billion in 1989 to just $2 billion a year later. ''The federal government, when it acts with a blunt instrument, can make a bad situation worse,'' says Karl von der Heyden, who ought to know. As chief financial officer of RJR Nabisco, von der Heyden, 55, has been steadily wrestling down the $29 billion in debt the company took on in its 1989 leveraged buyout. Much to bankers' and borrowers' dismay, the feds' HLT definitions ignore cash flow -- more technically known as Ebitda (earnings before interest, taxes, depreciation, and amortization). ''A lot of companies, including our own, got caught in this web even though our cash flow is very strong,'' von der Heyden complains. ''A bunch of arbitrary balance sheet ratios have replaced what should be sound credit analysis, and these rules have aggravated the credit shortage.'' His situation looks cheerier now. Asset sales of $5.5 billion, a cash infusion from controlling shareholder Kohlberg Kravis Roberts, and the proceeds from a series of huge common and preferred stock issues pushed RJR's total debt down to $14 billion by December 1991. Acknowledging von der Heyden's deleveraging drive, both Moody's and Standard & Poor's elevated RJR bonds to the nonjunk elite. That helped bump the company off the infamous HLT list. RJR has negotiated a new $6.5 billion line of credit with 60 banks at about 5%, two percentage points less than it had been paying. Von der Heyden predicts that interest expense will fall at least $270 million a year. Here's a closer look at deleveraging strategies for the debtlorn: -- Issue equity. RJR, Viacom, and hundreds of other companies have been aided in the war on leverage by two fabulous strokes of luck: tumbling interest rates, which steer investors away from T-bills and CDs, and the resulting bull market in stocks. Issues of new equity hit a record $61 billion as of December 1991, sailing past the previous high of $57 billion in 1986. So attractive and forgiving has the stock market become that many companies are trying to use it as a lender of last resort. General Nutrition Corp., the Pittsburgh-based vitamin and health food retailer, was saddled with $62 million in increasing-rate notes paying nearly 19% after it went private in 1989. The original plan was to retire those notes quickly, using lower-cost bank credit, but General Nutrition ran smack into the HLT ceiling and couldn't borrow a dime. Last summer the company filed a $100 million debt offering with the Securities and Exchange Commission, then let it languish after investment bankers sold management on an equity offering instead. ''We were planning to pay off the most oppressive debt with cheaper debt,'' says Robert Dunn, a senior vice president. ''But equity is the best money to get.'' Some companies have taken advantage of hybrid issues that bring the tax benefits of debt at far lower cost. Last November Eastman Kodak sold $975 million worth of limited-yield option notes, or LYONs -- zero-coupon bonds that are convertible to common stock. Kodak makes no payments now -- it shells out 6.75% annual interest when holders convert to common, say, or when the bonds mature in 20 years. But the company can write the interest off its taxes each year in the meantime. At first the Internal Revenue Service looked askance at the idea but then wrote a policy letter agreeing to leave it alone for now. Paul Smith, 56, Kodak's senior vice president for finance, is using the proceeds to pay down higher-priced debt. ''We did this for three reasons,'' says Smith. ''Cash flow, cash flow, and cash flow.''

-- Take all or part of a subsidiary public. Want to pay down debt by selling assets? Can't find a buyer? Not to worry. With any luck at all you can take a division or subsidiary public, and maybe even get a better price for the stock than you could from an acquirer. National Intergroup, the conglomerate that used to be National Steel, has taken this tack more than once. A nasty proxy fight with an investor group ended in September 1990 with a new board of directors. They decided to liquidate the whole company, selling off the grab bag of businesses that National Intergroup had acquired in the Eighties. The largest was a $3-billion-a-year wholesale drug distributor called FoxMeyer, in Carrollton, Texas. FoxMeyer was on the block for several months, but nobody offered National a price the directors could live with. So last summer FoxMeyer issued 10.3 million shares of common stock and forked over the $106 million net proceeds to National, which still owns 67% of the company. National used the money to pay down most of its long-term debt. National has now decided to stick with FoxMeyer, which accounts for about 90% of National's total sales. The other 10% comes from a chain of variety and craft stores called Ben Franklin. National wanted to sell that too, but couldn't entice any takers. In November the parent company filed a new stock registration with the SEC to take part of Ben Franklin public. Selling off a subsidiary to new public shareholders doesn't always work. Unisys Corp. tried for at least a year to unload a defense electronics division now called Paramax, hoping to use the money to pay down debt. But with the Cold War fading into history, no suitors materialized. In September, Unisys and Lehman Brothers, the lead underwriter, announced a plan to take Paramax public and sell 20 million shares at $22 to $25 apiece. Unisys expected to reap $332 million in cash. It was not to be. Wall Street greeted the idea of another defense stock with boos and hisses. Unisys recognized that nobody was going to pay anywhere near $22 and withdrew the offering. Unisys Chairman James Unruh said that getting rid of Paramax at ''fire sale prices'' would not serve the interests of Unisys shareholders. Observes an investment banker at Morgan Stanley, who asked not to be named: ''You can take almost anything public at some price. But a dog is still a dog.'' -- Sell assets. Companies that are determined to deleverage by selling assets can still do so, as McDonnell Douglas demonstrated a couple of months ago when it announced it would sell a portion of its commercial aircraft division to Taiwan Aerospace. McDonnell aims to use the huge cash infusion from the deal to slash its existing debt of $2.7 billion, which is 42% of its capital. Like the aircraft maker, other would-be asset peddlers may find they have to go overseas to find acquirers with deep pockets. Carl Ferenbach, a partner in the Berkshire Partners LBO firm in Boston, says today's U.S. buyers are now paying barely 60% of what the same assets would have fetched in the late Eighties. Notes Richard Jenrette, 62, chairman of Equitable Life: ''In this economic climate you have to comb the world to find financial flexibility. To paraphrase Blanche DuBois, many companies are now depending on the kindness of strangers.'' His is one of them. Last July, as part of an effort to cut long- term debt in half, Equitable sold a 40% stake to French insurer Groupe Axa for $1 billion. AMI, a for-profit hospital chain based in Dallas, went on a $1 billion worldwide selling spree to pay off debt from its 1989 leveraged buyout. The company divested itself of four hospitals in Switzerland and one each in Greece, Spain, and Singapore. The average price in those deals was more than six times the yearly cash flow from the hospitals. At the same time, AMI sold five psychiatric hospitals in the U.S. for about four times their cash flow. ''We got much better prices internationally than we expected,'' says Wendy Simpson, 42, the chief financial officer. ''It made up for the shortfall in prices here at home.'' In Spain, exchange rates moved in AMI's favor, too, Simpson adds: ''Between the time we sold that hospital and the day we actually got our money out, we made an extra $1 million.'' W.R. Grace, the $7-billion-a-year conglomerate headquartered in Boca Raton, Florida, considered issuing stock and using some of the proceeds to retire debt but decided to sell assets instead -- $1.5 billion worth by the end of 1992. ''For a company that's already publicly held, issuing more stock isn't magic,'' says J. P. Bolduc, 52, Grace's president and chief operating officer. ''Your shareholders suffer dilution, and then -- unless you have a terrific acquisition in mind -- you're sitting there with cash on your books and the Wall Street guys start telling you to buy in your own stock.'' Bolduc doesn't ever want to do that. His boss, Chairman J. Peter Grace, has often said companies that buy in their own stock are signally ill-managed. Analysts think Grace can get decent prices for the odd assortment of businesses it has put up for sale, which include oil-drilling Grace Energy, a Caribbean fertilizer operation, and a manufacturer of organic chemicals. In 1991 the company sold three businesses to bidders from the Netherlands, Germany, and Norway for a total of more than $250 million. Future acquirers may be foreign too. -- Dream up a new kind of deal. The quest for fresh capital invariably yields some innovative schemes. Debt-strapped Weirton Steel of West Virginia scraped up enough cash to complete badly needed modernization of a hot strip mill through a deal with one of its suppliers, the iron ore and pellet producer Cleveland-Cliffs. Cleveland came to Weirton last summer to ask whether the employee-owned company would like to sign a long-term purchasing agreement. Weirton's answer: Yes, if you'll buy a stake in us. Cleveland ended up taking 500,000 shares of a new Series B preferred stock issue for $25 million, which relieves Weirton of having to issue any new debt. In exchange, Weirton agreed to purchase a minimum of a million tons of ore and pellets annually from Cleveland for the next 12 years -- something the steel company might have done anyway. ''Even in a weak year we use at least a million tons, and Cleveland's prices are competitive,'' says a Weirton manager. ''So it was a win-win deal.'' -- Try a sale-leaseback agreement. A similar harmonic convergence occurred last June between IBM and Zale Corp., the largest U.S. jewelry retailer, which has been staggering under a $1 billion debt load from its 1986 LBO and may yet land in bankruptcy court. IBM had just launched its Integrated Systems Solutions Corp. (ISSC), a subsidiary created to provide data-processing services to companies that want to outsource their computer operations (FORTUNE, September 23). ISSC hoped to expand its potentially juicy business of selling data-processing help to retailers. Zale sorely needed a shot of cash; it is in default on its bank loans and plans to close about 400 stores nationwide. So ISSC bought Zale's huge data-processing center for an undisclosed price and signed a ten-year contract to lease computer services back to Zale at a discount. ''This has not been a good market to sell assets in,'' notes Andreas Ludwig, 33, a director and assistant to the chairman at Zale. ''So we did the ^ next best thing: a sale-leaseback agreement that was structured, for our balance sheet purposes, like an outright asset sale.'' -- Consider a private placement. The number of these arrangements, wherein a limited number of wealthy investors pump cash into a company in exchange for part ownership, doubled from 1990 to 1991, according to IDD Information Services. Last year about $13 billion changed hands this way. Ken Miller, 49, a former chief of mergers and acquisitions at Merrill Lynch, now runs Lodestar Group, a small New York City merchant bank that has taken minority positions in several highly leveraged companies through private placements. Says Miller: ''If takeovers were the deal of choice in the Eighties, private placements are more typical of the early Nineties.'' That's so for three reasons. First, selling a whole business may not be practical with acquisition capital so tight and U.S. buyers so leery. Second, since minority owners rarely demand much control over day-to-day operations, managers get the best of both worlds: a hefty helping of equity and no hassles. Third, and in sharpest contrast to a public equity offering, a private placement requires no SEC filings. That difference can be critical. Suppose you're at the limit of your bank credit but you want capital to make an important strategic acquisition and you haven't got much time if you're to outbid a richer rival. An SEC filing for a public offering would in effect oblige you to freeze your business, making no material changes of any kind, for at least 60 days. Here private placements can ride to the rescue. In early November the 1818 Fund, a merchant banking arm of Brown Brothers Harriman, put together a $40 million package for Western Gas Resources, a small Colorado natural gas company that wanted to buy a subsidiary of the much larger Union Texas Petroleum Holdings. The deal vastly increased Western's market share and profitability in one fell swoop. In return, the fund's 13 investors got 8% of the new, more robust enterprise. ''A public offering would have been much too slow, and satisfying the SEC's disclosure rules would have been impossible because Western was in the process of radically changing the company,'' says Lawrence Tucker, 49, a Brown Brothers partner. AS LONG AS BANKS have to obey the HLT regulations, the stock market keeps booming, and interest rates keep sliding downward, leverage-laden companies will continue finding ways to beef up the equity on their balance sheets and - kiss their creditors goodbye. Refreshing as that may be after the debt orgy of the past ten years, it's not entirely for the good. The feverish assault on leverage, made necessary by bank regulators, may be slowing down economic recovery. The hundreds of billions raised recently in stock and bond offerings and devoted to paying down old loans are hundreds of billions not being spent on new projects that could create jobs and jump-start economic growth. Deleveraging can go only so far. The equity that vanished from balance sheets of U.S. companies in the Eighties may never be entirely replaced. Between 1980 and 1990, $640 billion was converted, one way or another, from equity into debt. In order to restore equity to its former level, companies would have to keep issuing new stock at their record 1991 pace for the next 17 years. Seems unlikely, doesn't it? No matter how hard they try to banish the ghosts of Eighties excess, plenty of companies will be saddled with costly old liabilities for a long time to come.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHARTS/SOURCE: IDD INFORMATION SERVICES CAPTION: COMPANIES ARE RAISING EQUITY. . .

CHART: NOT AVAILABLE CREDIT: SOURCE: INDEPTH DATA CAPTION: . . .AND UNLOADING A PASSEL OF OLD DEBT