Google Inc. (GOOG), whose shares have dropped 9 percent
this year, is making its first foray into the bond market with a planned $3
billion sale to pay back short- term borrowings.
“People aren’t going to do very much credit analysis,
they’re going to look at the balance sheet, and look at the cash, and say ‘This
is ridiculous’ and put their orders in, and probably big orders,” said Lon
Erickson, a money manager
at Thornburg Investment Management Inc. in Santa Fe, New Mexico, who oversees $9
billion. “It will be scooped up like nobody’s business.”
The world largest Internet search company may issue three-,
five- and 10-year notes today, said a person with knowledge of the transaction,
who declined to be identified because terms aren’t set.
Google, with total cash and marketable securities of $35
billion according a regulatory filing, is tapping the corporate bond market as
investment-grade borrowing costs tumble to about the lowest since November.
Chief Executive Officer Larry Page, who replaced Eric Schmidt last month,
is ramping up spending to expand in mobile and video advertising even as U.S.
and European authorities mount investigations into the company’s business
Google set aside $500 million related to the possible
resolution of a U.S. Justice Department investigation of its advertising
business, resulting in lower first-quarter profit.
The expense trimmed net income to $1.8 billion, or $5.51 a
share, in the first quarter, Google said May 10 in a regulatory filing. The
shares have fallen 9 percent this year to $529.55 on May 13 in Nasdaq Stock
Until now the Mountain View,
California-based company has relied on a short-term debt financing program that
allowed it to borrow as much as $3 billion by issuing commercial paper,
according to the quarterly filing. The debt has a weighted average interest
rate of about 0.3 percent and weighted average maturity of about 163 days, it
said today in a filing that didn’t specify the size or maturities of the bond
Commercial paper typically matures within 270 days and is
used to finance everyday activities such as payroll and rent.
The average yield on investment-grade debt sold in the U.S.
fell to 3.78 percent on May 9, the lowest since Nov. 23, before rising to 3.8
percent at the end of last week, according to Bank of America Merrill Lynch
Google Chief Financial Officer Patrick Pichette said in a
December conference call that low interest rates hadn’t
lured the company into exploring financing through long-term debt.
“My job is to make sure that we have the perfect capital structure
that fits our strategic needs,” Pichette said. “If at the right time we decided
that actually more long-term debt would make sense, right, we’d announce it.”
Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase
& Co. are managing today’s bond sale, according to the regulatory filing.
Google is graded Aa2 by Moody’s Investors Service and AA- by Standard & Poor’s.