Meta explores a potential bond sale, its first ever

(Aug 3): Facebook parent Meta Platforms Inc has asked banks to hold investor meetings for a potential bond sale, the company’s first.

Meta has asked Morgan Stanley, JPMorgan Chase & Co, Bank of America Corp, and Barclays Plc to arrange a series of fixed-income investor calls Wednesday, according to a person familiar with the matter. A senior unsecured debt offering may follow, the person said.

Unlike many of its large-cap technology peers which have borrowed heavily at low rates despite large cash piles, Meta has sat out of the bond market until this point. It is one of just 18 companies in the S&P 500 without outstanding short or long-term debt, excluding lease liabilities, as of the most recent quarter, according to data compiled by Bloomberg.

“Meta could build a new capital structure that includes its first-ever bonds, issuing well over US$10 billion to potentially benefit holders of both equity and debt, following weak first half results, and over a 50% drop in its equity value,” said Bloomberg Intelligence analyst Robert Schiffman. “Increased capital spending focused on the metaverse, along with rising share buybacks, could be supported with tens of billions of low-cost debt theoretically as 2022 free cash flow contracts.”
Meta shares are down over 50% in 2022

Meta currently has capacity to issue as much as US$50 billion of debt, according to BI. Meta had roughly US$40.5 billion of cash and equivalents on hand as of June 30. The company’s shares are down 52% year-to-date amid increased competition from TikTok, economic concern and investor angst over Chief Executive Officer Mark Zuckerberg’s pivot to the so-called metaverse.

S&P Global Ratings assigned Meta a AA- investment-grade rating Wednesday, while Moody’s Investors Service gave the tech giant an A1 rating, one tier lower.

“The A1 issuer rating is based on Meta’s strong credit profile which reflects the leading global position of its platform brands in social networking, supported by its extensive user base,” Moody’s said in a report.