Amazon Plans Debt Offering to Finance Whole Foods Deal -- 2nd Update
August 15 2017 - 1:04PM
Dow Jones News
By Sam Goldfarb
Amazon.com Inc. is on track to sell as much as $16 billion of
bonds Tuesday to help fund its purchase of Whole Foods Market Inc.,
making a relatively rare trip to the debt market as it looks to
become a major player in the grocery industry.
Amazon is expected to draw large demand for its bond offering,
some investors said. The company is already a dominant figure in
the retail sector, generating billions of dollars in cash flow
annually, and the debt sale is just its fourth since 1998 and first
since Dec. 2014, according to Dealogic.
Investors said they expect Amazon to sell around $14 billion to
$16 billion of bonds across seven different maturities, ranging
from three to 40-years. That puts the offering on track to become
the fourth-largest U.S. corporate bond deal of the year, according
to Dealogic.
Earlier this week, Moody's Investors Service affirmed Amazon's
Baa1 rating and changed its outlook to positive from stable, saying
the benefits of the Whole Foods acquisition outweighed the extra
debt being taken on to fund the deal.
Compared to other companies with similar credit ratings, Amazon
has relatively little debt outstanding, "making it a good
opportunity for a lot" of debt investors, said Rajeev Sharma,
director of fixed income at Foresters Investment Management
Company.
Excluding lease obligations, Amazon reported $7.68 billion of
long-term debt and more than $21 billion of cash and marketable
securities as of June 30.
Expected to close in the second half of the year, Amazon's
purchase of Whole Foods has the potential to reshape the grocery
industry as the online retail giant makes its first major entry
into brick-and-mortar. The company has so far said little about its
plans for the more than 460 stores it is acquiring, in part because
the deal came together in about six weeks, but former Amazon
executives expect it to reduce prices, integrate some backend
operations and add some Prime membership benefits.
Amazon has struggled to gain a foothold in the grocery industry
for years due largely to the regular nature with which consumers
shop for food, although it still has a tiny portion of overall
sales. Meanwhile, traditional grocers such as Kroger Co. and
Albertsons Cos. have been struggling with volatile food prices and
competition from discounters.
The company is taking advantage of favorable borrowing
conditions. As of Monday, the average yield premium on
investment-grade corporate bonds relative to Treasurys was 1.11
percentage points, not far above the post-financial crisis low of
0.97 percentage point set in 2014, according to Bloomberg Barclays
data.
Amazon's existing 4.8% bonds due 2034 traded Tuesday at just
below 113 cents on the dollar, translating to a yield-premium to
Treasurys of 0.92 percentage point, according to MarketAxess.
--Laura Stevens and Justina Vasquez contributed to this
article.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
August 15, 2017 12:49 ET (16:49 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Sep 2023 to Sep 2024