NEW YORK: For almost three months, Big Tech companies didn’t borrow in the US bond market after they spooked investors with a debt binge in the hundreds of billions of dollars.
Now they’re flooding in again.
Oracle Corp sold US$10bil of bonds on Monday alongside selling an equal amount of equity, while Meta Platforms Inc is eyeing at least US$20bil from a potential debt offering in multiple currencies.
Elsewhere, Microsoft Corp sold US$25bil of bonds, its first US offering since 2017.
The deluge is coming in other currencies too. Alphabet Inc raised debt in the Europe bond market on Monday for the second time this year.
The string of debt sales showed how companies are once again pushing ahead with plans to raise money for investments related to artificial intelligence (AI) despite increasing signs that money managers are jittery about tech firms’ spending.
Market participants pointed at several reasons behind the timing of the recent deals, including a rush to take advantage of lower yields and to launch offerings ahead of US midterm elections.
“There’s an insatiable need for capital with the AI infrastructure buildout and companies are going wherever they can to find that capital,” said Michael Reynolds, vice-president of investment strategy at Glenmede.
“But investors are sceptical of what the AI growth story is going to look like right now.”
Oracle sold the debt in five tranches, with maturities ranging from three to 20 years, according to a person familiar with the matter.
The longest-term notes were priced to yield 3.35 percentage points more than treasuries, the person added, asking not to be identified because they are not allowed to speak publicly.
Companies have borrowed more than US$330bil from US high-grade corporate bonds to fund AI investments this year, according to data compiled.
Last week’s steep decline in tech shares was the latest sign of investor worries that the enthusiasm over AI may be fading.
On the credit side, S&P Global Ratings signalled a potential credit downgrade for Meta Platforms Inc over the next two years, revising the outlook for the company’s debt to negative.
The ratings firm cited the heavy capital expenditures required to fund its AI initiatives.
Now debt buyers have demanded higher premiums to take on the risk of firms tied to the AI investment boom.
The average spread on a US high-grade corporate bond in the tech industry has climbed to 1.08 percentage point as of last Friday, compared with 0.76 percentage point at the end of last year.
Even if risk premiums on tech bonds have grown, signalling the bonds have performed worse than government debt, overall borrowing costs have still declined for tech companies and US companies in general.
The average yield on US high-grade corporate debt stood at around 5.79%, after topping 6% in September and early October.
With yields easing, “the backdrop is more constructive for issuance if you compare it to September,” said James Martin, a senior credit strategist at Sumitomo Mitsui Banking Corp.
Oracle offered an elevated premium of roughly 0.3 percentage point over its existing debt as part of efforts to lure investor demand, according to a Bloomberg calculation.
Bank of America Corp was leading both the bond and stock transactions, according to the filings.
Peak demand for the Oracle deal was about US$38bil, according to people with knowledge of the matter, or nearly four times the deal size.
Oracle’s US$10bil share sale had attracted demand earlier for well above the amount sought, according to people familiar with the matter.
The company’s stock briefly surged last week, while a measure of its credit risk plunged, after it committed to limit gross debt growth to US$10bil through fiscal 2030 and projected free cash flow.
Meta’s deal, meanwhile, would mark its first major debt sale in six months and its debut offering in euros, as it follows rivals Alphabet Inc and Amazon.com Inc in diversifying its funding across different currencies.
The company spoke to investors in Europe last month as part of a non-deal roadshow.
Meanwhile, Alphabet was selling debt in the euro bond market for the second time this year, offering considerably higher yields than in its sale in May after concerns over the pace of AI spending sparked credit market turbulence.
Alphabet ended up paying up to draw investors to its €6bil (US$6.73bil) offering, which came shortly after an earnings miss last week that caused its stock price to plunge and credit-default swap spreads to hit an all-time high.
The company forked out significantly more than the average new issue concession across corporate borrowers in euros this year, based on data compiled by Bloomberg.
Each tranche also came with roughly double-digit premiums to its previous euro-denominated issue in May.
When it comes to Oracle, investors and analysts said the US$10bil bond deal will probably be the company’s last new debt offering to fund the AI buildout for the next few years, with future bond sales likely to only refinance existing borrowings.
CreditSights analysts said they expected around US$20bil in additional issuance between 2027 and 2029 to refinance upcoming bond maturities.
Still, doubts over the extent of the company’s financing requirements remained.
“Oracle today showed that hyperscalers retain market access, but that access came at a price,” said Grant Nachman, chief investment officer of Shorecliff Asset Management.
“They have to offer concessions because people are worried about the sheer quantum of issuance coming.” — Bloomberg
