Amazon Plans Debt Offering to Finance Whole Foods Deal -- 3rd Update
August 15 2017 - 3:52PM
Dow Jones News
By Sam Goldfarb
Amazon.com Inc. is set to sell $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.
Meeting strong demand from investors, Amazon was poised to sell
a $3.5 billion 10-year bond at a 0.9 percentage point yield-premium
to Treasurys, below the 1.1 percentage point guidance circulated
earlier in the day, according to people familiar with the deal. The
online retail giant, which generates billions of cash flow
annually, is also selling debt across six other maturities, ranging
from three-years to 40-years, in what is on track to add up to the
fourth-largest U.S. corporate bond deal of the year, according to
Dealogic.
Earlier this week, Moody's Investors Service affirmed Amazon's
Baa 1 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. The debt sale is just
Amazon's fourth since 1998 and first since Dec. 2014, according to
Dealogic.
Compared with 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 said little about 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 back-end operations and
add some Prime membership benefits.
Amazon has struggled to gain a foothold in the grocery industry
for years. 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 0.93 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 15:37 ET (19:37 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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