Meta Platforms Inc., one of the few debt-free S&P 500 companies, sells US$10 billion in its first-ever corporate bond sale as its cash flow and stock price tumble.
The social media giant’s bond deal is in four parts, according to a person familiar with the matter. The longest part of the offer, a 40-year security, will fetch 1.65 percentage points above Treasuries, said the person, who asked not to be identified as the details are private. after initial discussions of 1.75 to 1.8 percentage points. Meta bond orders hit more than $30 billion at the peak of the early afternoon in New York, according to a person familiar with the demand.
The company’s position on borrowings may have changed with the state of its operations. Meta just posted its first quarterly year-over-year revenue decline, citing uncertainty in the digital advertising market that has fueled its growth for years.
Facebook and Instagram’s parent company fears young people are abandoning its platform for ByteDance Ltd’s TikTok. And it has big, expensive ambitions to build an all-new version of the internet in the Metaverse, an immersive virtual reality world where CEO Mark Zuckerberg imagines we’ll communicate, work and shop in the future.
The proceeds from the sale of bonds can be used for purposes such as capital expenditures, share buybacks and acquisitions or investments. According to Bloomberg Intelligence analysts Mandeep Singh and Ashley Kim, the company may be more likely to use the money to significantly strengthen its share buybacks, and hire and retain talented employees, rather than increase capital spending. Metaverse.
Meta used cash to buy back shares, including $5.1 billion in the second quarter of this year, and had $24.3 billion available for buybacks as of June 30, according to its earnings release last week. . Its stock price has more than halved from its September high of US$168.80 as of Wednesday’s market close, making redemptions cheaper. And even with the issuance of a mega deal, leverage would still be less than 1x, based on 2022 consensus Ebitda, BI analyst Robert Schiffman wrote in a note.
Its stock of cash fell $23.6 billion from a year earlier, according to data compiled by Bloomberg. It was one of the biggest cash losses for non-financial companies in the S&P 500 during the period.
Many of Meta’s big peers in the tech industry have borrowed heavily at low rates despite having large piles of cash. Including Meta, there were just 18 companies in the S&P 500 with no outstanding short or long-term debt, excluding lease debt, as of the last quarter, according to data compiled by Bloomberg.
Over the past month, other tech companies, including Apple Inc. and Intel Corp., have taken advantage of the recovery in credit markets to sell debt. Companies are benefiting from yields that have fallen after surging all year, providing a moment of relative stability in the market.
S&P Global Ratings gave Meta an AA- investment grade rating, while Moody’s Investors Service gave the tech giant an A1 rating, the equivalent of one notch below.
“The A1 issuer rating is based on Meta’s strong credit profile which reflects its platform brands’ global leadership position in social media, supported by its large user base,” Moody’s said in a report.
Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Barclays Plc handle the bond sale on Thursday. Meta and the banks made a series of calls to fixed income investors on Wednesday to market the selloff.