4th UPDATE: Google Sells Its First Corporate Debt Deal
16 Maggio 2011 - 11:16PM
Dow Jones News
Google Inc. (GOOG), the world's largest Internet search company,
on Monday sold its maiden U.S. corporate debt deal, a $3 billion
multitranche offering.
The issue includes three-, five- and 10-year tranches and was
sold via joint bookrunners Citigroup (C), J.P. Morgan Chase (JPM)
and Goldman Sachs (GS).
Size had been split evenly across tranches at $1 billion
each.
The three-year piece was sold with a risk premium of 33 basis
points over Treasurys to yield 1.258%; the five-year at 43 basis
points, yielding 2.241%; and the 10-year was priced with a spread
of 58 basis points over Treasurys, yielding 3.374%.
All three tranches were launched earlier Monday at narrower
levels than preliminary pricing guidance had suggested, indicating
good demand from investors.
Orders for the issue exceeded $10 billion, according to a person
working on the deal. He said that orders had come from the "usual
gamut" spanning mom-and-pop shops, major bond funds, insurance
accounts and bank portfolios. He while the company stuck to its
initially planned $3 billion size, the company could have easily
doubled that amount and added any number of additional maturities,
but chose not to.
"We plan to use the proceeds to repay outstanding commercial
paper and for general corporate purposes," according to a Google
representative who declined further comment.
While the company would not firmly say what net proceeds will be
used for, one likely route will include expansion, given the
company's massive reorganization and strategy under new Chief
Executive Officer Larry Page. Page replaced former CEO Eric Schmidt
in April.
In a conference call last month, Page said he was "very
optimistic" about Google's future but noted room for improvement.
He also confirmed a shuffling of executives.
Although Google is sitting on a mountain of assets, including
$35 billion in cash, the company--like many others--is clearly
taking advantage of extremely low borrowing costs, which are at
their lowest levels in years.
The average yield on investment-grade debt sold in the U.S. was
last quoted at 3.8%, according to the Bank of America Merrill Lynch
index.
While those levels might bode well for Google, investors can't
be as excited given the strain in yield.
Bill Larkin, portfolio manager at Cabot Money Management in
Boston, said the Google offering is "bad news from a bond-buyer
standpoint." He said that while Google is essentially getting "free
money," investors won't reap any real fiscal benefit given the
payout.
To be sure, the new securities offer paltry compensation for
investors in comparison to similar maturities in other asset
classes--even those of safe-haven Treasurys. Larkin said bond
buyers aren't being compensated for any additional risk associated
with corporate bonds, but are instead "window dressing" their
portfolios with a new name.
Triple-A rated rival Microsoft Corp. (MSFT) sold a five-year
issue that offered a 2.50% coupon in February.
Additionally, Google may be filling its war chest at
bargain-basement rates.
"It's very easy for a company like Google to prefund the
purchase of another company at such attractive rates," Larkin
said.
No firm merger or acquisition plans have officially been
announced by Google, though market speculation that the company
will soon expand is rampant.
In addition, some of Google's cash might be tied up offshore and
would be subject to severe taxes if the company were to bring it
back to the U.S.
"Certainly borrowing here gives them the flexibility they would
not have if they repatriated cash from overseas," said Margie
Patel, senior portfolio manager at Wells Capital Management. She
noted that those funds would be subject to high corporate tax
rates, and locking up long-term, record-low borrowing costs in the
U.S. was a good alternative. "It seems more prudent to take
advantage of the strong market here for high-quality issuers."
Google was most recently in the headlines when social network
Facebook acknowledged it had hired a PR firm to plant anti-Google
stories related to user privacy.
Monday's deal has been rated Aa2 by Moody's Investors Service
and AA-minus by Standard & Poor's. Settlement is slated for May
19.
-By Kellie Geressy-Nilsen, Dow Jones Newswires; 212-416-2225;
kellie.geressy@dowjones.com
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