Amazon set a record in the corporate bond market on Monday, coming closer to the level of interest paid by the US government than any other US company has previously done in fundraising.
The ecommerce group raised $ 18.5 billion in debt through bonds with eight different maturities, ranging from two to 40 years, according to people familiar with the deal. On its $ 1 billion two-year bond, it paid just 0.1 percentage point more than the yield on equivalent US Treasuries, a record according to Refinitiv data.
The extra yield over government bonds paid by companies, or the spread, is an indication of investors’ perception of the risk of lending to a company relative to the so-called risk-free rate on U.S. government debt.
Amazon, one of the runaway winners of the pandemic, posted its second straight quarter last week with sales in excess of $ 100 billion and said its net income in the first quarter tripled from the same period a year ago. up to $ 8.1 billion.
The company had $ 33.8 billion in cash and cash equivalents available at the end of March, according to a recent filing, a high for the period.
“They don’t need the money, but money is cheap,” said Monica Erickson, head of the investment-grade corporate 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 severe sell-off following the pandemic, and now average levels lower than before the coronavirus hit.
This means that it is a very attractive time for companies to borrow money from investors, even if it is not urgently needed.
Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage points, breaking last year’s record of Alphabet’s funding costs, according to data from Refinitiv. It also matched the 0.2 percentage point spread that Apple first paid for a three-year bond in 2013, falling just below the 0.47 percentage point paid by Procter & Gamble for a 10-year bond last year.
Investor orders for Amazon’s fundraising fell just below $ 50 billion, according to people, as a sign of rampant investor demand for U.S. corporate debt, even as rising interest rates have eroded the value of higher-quality fixed-income bonds.
Highly rated US corporate bonds still offer higher interest rates than much of the rest of the world.
Amazon’s two-year bond also bore a sustainability label that was 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.
It mentioned a number of other possible uses for the remainder of the debt, including stock buybacks, acquisitions and capital expenditures.
Brian Olsavsky, chief financial officer, said in a recent conversation with investors that the company would ‘invest heavily’ in the ‘middle mile’ of delivery, including air freight and road transport, in addition to expanding its ‘last mile’ network of vans. and home deliverers.