For us, buy-backs are credit negative if it means buying-back using leverage and more debt, particularly for banks given it reduces the equity buffer needed in case of trouble.
Increasing debt to fund share buy-back is a trend we have seen lately. It might be more efficient from a tax point of view given interest on debt is deductible, but, remember, a debt has to be repaid at some point...
Share buy-backs do eat into FCF (Free Cash Flow). While we recently touched on the return of LBOs with the example of DELL inc ("The return of LBOs - For whom the Dell tolls"), from a credit perspective, in similar fashion to LBOs, the rising trend in share-buybacks using debt finance warrants close monitoring in this "Yield Famine" induced environment of "Financial Repression", where the "credit mouse-trap" has been set up by Central Banks.
"If you do not change direction, you may end up where you are heading." - Lao Tzu