FILE PHOTO: A man walks past a logo of Google in front of at an office building in Zurich, Switzerland July 1, 2020.
NEW YORK: Alphabet Inc borrowed US$10 billion in the investment-grade corporate debt market on Monday (Aug 3), the Google parent’s largest bond issue, which it secured at its lowest-ever cost of financing.
Of the US$10 billion on offer, the US$1 billion five-year tranche was issued at a coupon of 0.45 per cent, the lowest coupon seen at that maturity since Apple Inc issued a US$1.5 billion five-year note at 0.45 per cent in 2013.
Investor appetite was fierce for the tech giant’s six-part bond, as low interest rates and corporate bond buying from the Federal Reserve continues to support issuance. The deal garnered more than US$31 billion in demand, according to Refinitiv IFR. Previously, Alphabet’s lowest coupon was 1.25 per cent on a US$1 billion May 2014 note.
“We’re at a stage where these extremely high-quality issuers – of which Alphabet is one – are going to price very very tight. That’s because there are a lot of buyers who need short-term, don’t-need-to-think-about-it money. You’re getting two times the yield on the five-year Treasury,” said Tom Graff, head of fixed income at Brown Advisory.
Last week Alphabet reported its first quarterly sales drop in its 16 years as a public company. Its share price was largely unmoved however, as the loss in sales was offset by a recovery in Google’s ads business.
“There is a very narrow set of companies that were already super high quality, that are not impacted by this recession we’re going through right now. And Google is one of them,” said Graff.
Alphabet’s five-year tranche priced just higher than Amazon.com’s 0.40 per cent three-year note issued in June, among the lowest corporate coupons ever recorded. Alphabet’s 0.45 per cent five-year tranche was however cheaper than Amazon’s June 2020 offering at the same maturity, which priced at 0.80 per cent.
Of the US$10 billion offered, US$4.5 billion from the seven-, 20- and 40-year tranches will be used for general corporate purposes, including acquisitions. The remaining US$5.5 billion will be used for green initiatives, the company said, the largest-ever issue of corporate debt for environment, social and governance endeavours.
