Meta Platforms Inc., the parent company of Facebook, has raised $8.5 billion in a five-part deal, becoming the first mega-cap technology firm to tap into the US investment-grade bond market amidst turmoil in the financial sector. The longest portion of the offering, a 40-year security, yields 192 basis points over Treasuries, which is less than initial discussions for about 215 basis points. Eleven companies came forward with bond offerings on Monday, including the Hershey Co., which sold $750 million in bonds, and Comcast Corp., which was out with a $5 billion, four-part deal. Over $22 billion was set to price on the day.
Meta, which reported earnings last week, plans to use the fresh funds to finance capital expenditures, repurchase outstanding shares of its common stock, and for acquisitions or investments. Bank of America Corp., JPMorgan, and Morgan Stanley were the bookrunners on Meta's deal. The Menlo Park, California-based company has spent the last months cutting costs and restructuring its workforce, while advertising sales rebounded in the first quarter. Even though it touts strong cash flow, the company is likely looking to shore up extra cash for future bond buybacks.
According to Bloomberg Intelligence analyst Robert Schiffman, "After it boosted repurchase authorization by $40 billion in January, we envision shareholder returns will keep growing — similar to Alphabet and Apple — as free-cash-flow prospects improve. With initial price talk wide to peers, we perceive little credit risk and strong relative value out the curve."
The scope of issuance in the wake of JPMorgan Chase & Co.’s rescue of First Republic Corp. stands in contrast to the reaction seen in the primary market to the banking crisis that began unfolding in March. Days after Silicon Valley Bank’s collapse, at least eight potential issuers stood down. The fallout led to March issuance coming in at about $100 billion, well below projections of $150 billion.
In conclusion, Meta's entry into the US investment-grade bond market demonstrates the tech giant's financial strength and the company's willingness to secure extra cash for future bond buybacks, acquisitions or investments. With the initial price talk wide to peers, little credit risk is perceived, and strong relative value out the curve.
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