Meta May Join Apple and Intel in its first Bond Sale! The U.S. corporate bond market is hot again on the prospect of higher interest rates
Facebook parent Meta Platforms ($168.8, $451.304 billion market cap) has asked several investment banks to study demand for a potential corporate bond sale, Bloomberg reported on Wednesday. If it goes ahead, it would be the tech giant's first corporate bond sale.
This week, Apple (AAPL, $166.13, market cap $2.69 trillion) and Intel (INTC, $36.52, market cap $147.314 billion) are also scheduled to issue corporate bonds. This comes after big banks such as Bank of America (BAC, $33.64, market cap $271.107 billion), jpmorgan Chase (JPM, $113.61, market cap $337.038 billion) and Wells Fargo (WFC, $43.89, market cap $167.736 billion) have joined the debt issuance army in July.
As the Federal Reserve continues to raise interest rates aggressively, raising the cost and risk of raising money through bonds, many companies are stepping up their pace. Wall Street expects July's bond sales to continue, with about $30 billion of new high-grade debt sold this week.
Meta or its first bond issue
Meta has reportedly invited investment banks including Morgan Stanley, jpmorgan Chase, Bank of America and Barclays to arrange calls to potential investors.
Meta is one of only 18 companies in the S&P 500 that issue neither long-term nor short-term corporate debt other than lease debt.
In its latest quarterly filing with the U.S. Securities and Exchange Commission last week, Meta said it would continuously evaluate its cash liquidity and capital resources, including exploring access to external capital, which will ensure it can meet its future capital needs.
Meta currently has the capacity to issue as much as $50 billion in bonds, according to Bloomberg. Meta had about $40.5 billion in cash and equivalents as of June 30.
"It's very unusual that they (Meta) haven't been in the bond market," said Ken Mahoney, chief executive of Mahoney Asset Management.
Since this year, influenced by factors such as the United States macroeconomic environment, the operations of Meta continued to hit, in the first quarter of 2022 revenue the slowest increase in 10 years, and in the second quarter for the first time in quarterly revenue fell, net profit is three quarters in a row, its shares tumbling ahead, year-to-date has fallen by more than 50%.
Photo credit: Google Finance
Meta is in dire need of capital, Mahoney said, as the company struggles with weak earnings, increasing competition on social platforms, and a steady decline in advertising revenue. Meanwhile, Meta has been spending about $3 billion per quarter to expand its Metaverse business, but has not seen results in the near future.
Mahoney believes that these factors, along with the worsening macroeconomic environment in the US, may prompt Meta's management to look for another source of financing for the company while keeping the company's balance sheet strong and borrowing costs have yet to rise further.
It is unclear what specific uses Meta's bond issue might have.
Standard & Poor's Global Ratings gave Meta an AA- investment grade rating on Wednesday, while Moody's rated the tech giant one notch lower at A1.
The wave of issuance is likely to continue into August
Notably, Apple and Intel also announced plans to issue corporate bonds this week.
Apple will issue four tranches of senior unsecured notes due 2029, 2032, 2052 and 2062, according to SEC filings on August 1. Apple has not disclosed the size or interest rate of the bond offering, but Bloomberg reports that the total value of the offering will be $5.5 billion.
Apple's 40-year bond, the longest maturity, will yield 118 basis points over Treasurys, Bloomberg said, citing people familiar with the matter. The proceeds will be used for general corporate purposes, including share buybacks and dividend payments.
Bloomberg Intelligence analyst Robert Schiffman said Apple continues to raise tens of billions of dollars a year more out of confidence to boost cash flow than out of operational need.
Intel announced on August 3 that it would issue a total of $6 billion in five tranches of debt, including a $1.25 billion green bond. The proceeds will be used to fund eligible sustainability projects and general corporate purposes, including but not limited to refinancing outstanding debt, working capital financing and capital expenditures.
Across the bond market as a whole, the primary market for U.S. investment-grade debt appears to be coming back to life. U.S. investment-grade bond issuance reached $86.9 billion in July, up from $69 billion in June, according to PitchBook's LCD.
In mid-July, big banks such as Bank of America, jpmorgan Chase and Wells Fargo all issued large amounts of debt after reporting earnings. Bank of America sold about $10 billion in bonds on July 19. J.p. Morgan, Wells Fargo and Morgan Stanley sold a combined $17.5 billion a day earlier. The big banks' bond sales far exceeded market expectations.
David Knutson, head of U.S. fixed-income product management at Schroders Plc, said companies want to get ahead of further Fed tightening and higher bond costs.
Wall Street expects July's bond sales to continue, with about $30 billion of new high-grade debt sold this week.
Tom Murphy, head of investment-grade debt at Columbia Threadneedle in New York, said that while August is traditionally a slow month for issuance, he expected the market to be a little hotter than usual this year. Increased macroeconomic uncertainty could prompt more highly rated US companies to issue corporate bonds in August.