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Friday, 14 December 2018

US Bond: Amazon's US$16bn seven-tranche bond

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Amazon delivers

Online behemoth Amazon stayed true to its disruptive nature with a US$16bn seven-part bond issue – the fourth-largest of the year – to help fund its transformative acquisition of Whole Foods Market.

The company amassed US$46bn of orders for the deal, which included a US$2.25bn 40-year tenor – and managed to reel in pricing levels as the book expanded, eventually pricing at the tight end of guidance.

The 40-year tenor was unusual for a tech company, although not unheard of. Microsoft and Oracle had already sold issues with tenors of 40 years, and Amazon’s 40-year bonds tied with Microsoft for the largest 40-year tenor ever sold.

More than half the Amazon senior unsecured note offering was sold in maturities greater than 10 years.

Proceeds were set to finance in part the US$13.7bn acquisition of Whole Foods, a natural and organic foods retailer.

With the third-quarter results in, CreditSights noted that Whole Foods contributed US$1.3bn in revenues and US$21m in operating profits for the partial quarter of the newly combined entity.

The move into the grocery arena, announced in June, sent shivers throughout the retail industry, as Amazon’s strategy was seen as a game-changer.

Amazon said it would slash prices for many offerings. And it would tap into its sophisticated logistics network for deliveries.

Investors clamoured for the offering because it was a big, glamorous liquid name. And investors looked beyond Amazon’s ratings gulf (AA– from S&P and Baa1 from Moody’s). In fact, at least judging by the pricing, the market sees Amazon as a high Single A company as final pricing was in line with large-cap tech issuers.

“People were really excited about this opportunity, and everything fell into place from there,” said Jonny Fine, head of the Americas investment-grade syndicate desk at Goldman Sachs, which was lead-left on the deal. Bank of America Merrill Lynch and JP Morgan were also bookrunners.

“The thing I’d say about Amazon is that the moment the acquisition was first announced, including the fact that they were going to access the term-debt market, I don’t think I’ve seen an investor base as excited for a deal in the pipeline as they were since the original Apple deal in April 2013,” said Fine

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To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com.

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