Amazon’s new bond rivals report on US Treasuries in record selling
Amazon set a corporate bond market record on Monday, approaching the level of interest paid by the U.S. government that any U.S. company has previously succeeded in raising funds.
The e-commerce group has raised $ 18.5 billion in debt on bonds of eight different maturities, ranging from two to 40 years, according to people familiar with the deal. On its two-year $ 1 billion bond, it paid only 0.1 percentage point more than the yield on the equivalent U.S. Treasury debt, a record according to Refinitiv data.
The additional return on top of corporate paid treasury bills, or spread, is an indication of investors’ perception of the risk of lending to a company relative to the assumed risk-free rate on US government debt.
Amazon, one of the big winners in the pandemic, last week released its second consecutive quarter of Over $ 100 billion in revenue and said its net income tripled in the first quarter from the same period a year ago, to $ 8.1 billion.
The company had $ 33.8 billion in cash and cash equivalents at the end of March, according to a recent filing, a record high for the period.
“They don’t need the money, but the money is cheap,” said Monica Erickson, head of the investment grade firms team at DoubleLine Capital in Los Angeles.
Spreads have fallen dramatically since the Federal Reserve stepped in to support the corporate bond market in the face of a massive sell-off caused by the pandemic, and now average levels lower than before the coronavirus strike.
This means that it is a very attractive time for companies to borrow money from investors, even if they do not have an urgent need for it.
Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage point, breaking Alphabet’s record cost of borrowing from a year ago, data shows by Refinitiv. It also matched the 0.2 percentage point spread first paid by Apple for a three-year bond in 2013 and fell just below the 0.47 percentage point paid by Procter & Gamble for a bond. at 10 years old last year.
Investor orders for Amazon’s fundraising fell to just under $ 50 billion, people say, in a sign of surging investor demand for U.S. corporate debt, even as rates hike. Interest eroded the value of higher quality fixed rate bonds.
Well-rated US corporate bonds still offer higher interest rates than most other countries.
Amazon’s two-year bond also carried a sustainability label that has become increasingly attractive to investors. The company said the money would be used to fund projects in five areas, including renewable energy, clean transportation and sustainable housing.
He listed a number of other potential uses for the rest of the debt, including stock buybacks, acquisitions, and capital spending.
In a recent appeal to investors, Brian Olsavsky, chief financial officer, said the company would “invest heavily” in the “middle mile” of delivery, which includes air freight and road transport, in addition to expanding its network. of “last mile”. home delivery vans and drivers.