Big tech targets bond market for cash to buy back sinking stocks

NEW YORK – Tech companies, including Microsoft and Meta Platforms, are expected to hit the bond market for cash to buy back stock after last year’s rout.

As much as US$20 billion in issuance from Microsoft and US$10 billion from Meta could be on the docket, according to analysis by Bloomberg Intelligence. The sector has more cash than others, giving it room to pursue bond sales to fund buybacks.

Microsoft’s shares are down nearly 30 per cent in the last year, while Meta Platforms saw more than 60 per cent of its value erased.

The massive sell off in many high-flying tech stocks may push the industry’s behemoths to borrow more to help return money to shareholders as cash levels drop.

“Despite rising interest rates and minimal maturities, we don’t expect tech to avoid debt markets; the sector may continue to bolster balance sheets, particularly for enhanced shareholder returns,” Bloomberg Intelligence strategist Robert Schiffman wrote in a note Wednesday.

Funding for acquisitions and maturing debt also “could drive jumbo financing at the sector’s largest issuers.”

Amazon.com., meanwhile, shored up US$8 billion through a term loan just as the company announced it is laying off more than 18,000 workers. Its shares have plunged almost 50 per cent in the past year.

A spokesperson for Amazon said the company regularly evaluates its operating plan and makes financing decisions – like entering into term loan agreements or issuing bonds – accordingly. “Given the uncertain macroeconomic environment, over the last few months we have used different financing options to support capital expenditures, debt repayments, acquisitions, and working capital needs,” the spokesperson said.

Microsoft and Meta did not immediately respond to requests for comment.

Most companies in the high-grade market spent the past decade binging on debt and pushing ratings down to the last rung of investment-grade. Now, as an economic downturn looms, the average blue-chip company is expected to be in balance sheet repair mode, according to Bank of America strategist Yuri Seliger.

“Investors want companies to be more careful with their balance sheets and use cash to pay back debt,” he said. “The tech sector might be an exception because that industry has a lot of cash.”

But while Big Tech’s balance sheets are still in a strong position, it is likely that cash levels will deteriorate further without additional borrowing, Mr Schiffman said.

The industry’s robust cash levels have already fallen. Microsoft’s cash levels dropped 22 per cent since its September 2020 peak, according to Mr Schiffman. Meta and Amazon’s cash piles plunged 34 per cent and 39 per cent from their June and December 2021 peaks, respectively.

“Cash on balance sheets remains abundant,” he said. “But it would likely fall sharply if not for opportunistic borrowing in 2023.”

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