Monday, 24 September 2018

Visa to hold off on bond deals amid tax uncertainty

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Visa will hold off selling long-term bonds until there is more clarity about proposed tax reforms on the repatriation of overseas cash, the company’s CFO said on a quarterly earnings call on Friday.

The company has already delayed a US$2bn debt sale, choosing to issue US$567m in commercial paper instead to fund share buybacks and operating cash needs, Visa’s CFO Vasant Prabhu said.

Visa has US$8bn of offshore cash, which could be repatriated if it can be done tax efficiently, Prabhu said.

“We will wait to see what the new administration’s plans for permitting cash repatriation are before we issue longer-term debt,” Prabhu said.

“Until there’s clarity on this front, we plan to issue commercial paper or short-term debt to fund our buyback and other onshore cash needs.”

Visa has not accessed the US dollar bond market since December 2015 when it made its debut with a US$16bn trade to help finance the acquisition of its former European subsidiary.

The repatriation of cash held overseas is one aspect of the new US administration’s planned overhaul of US corporate tax rules that could have a big impact of the bond market.


Bankers and issuers are having discussions about how the planned changes will impact them, and at least one issuer is preparing to sell a high-yield bond that would include a provision to buy the bonds back at a premium if interest expense deductibility is dropped, market sources told IFR last week.

It would be the first junk bond to include such a covenant since tax reform proposals were announced. nL1N1FO1MZ

Some issuers have chosen to sell bonds anyway despite the uncertainty.

Microsoft and Apple, which each have more than US$100bn in cash overseas, sold multi-billion bond deals last week.

Bankers said Microsoft had limited flexibility about coming to market with a new issue as it had a large commercial paper balance to refinance related to its acquisition of LinkedIn last year.

Others, meanwhile, said it made sense for issuers to bring deals as there is still great uncertainty about when the tax changes will come into force.

“One of the ways tax reform potentially gets delayed … is if it includes the border adjustments, as that would be a hugely contentious issue,” BAML said.

“However in the coming months, as we get more clarity on reform details we expect such companies to dial down supply.”

Visa’s Prabhu said the company did not want to issue long-term bonds now as it ran the risk of having more cash than it needs if tax repatriation rules are changed.

“Let’s say we issued $2 billion of long-term debt and were able to repatriate somewhere [in the region] of $8 billion of offshore cash, … because there is a change in the rules that allows it to happen tax efficiently,” Prabhu said.

“We would have more cash than we need to keep for settlement guarantees.”


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