Yesterday morning we reported that the news of Amazon's massive, 6-part bond issuance - which came just as Morgan Stanley upgraded the company's price target to $2,800 - was enough to push Treasury yields to session high following a flurry of rate locks. Little did we know that just a few hours later demand for the offering would overflow dealer books, and the result as announced late on Monday, was the sale of $10 billion in a more than 3x-oversubscribed offering (led by DB, GS, HSBC, JPM) that included three-year notes carrying an interest rate of just 0.4%.
This means that just days after US investment-grade issuers sold more than a record $1 trillion in debt in just the first 5 month, Amazon locked in the lowest borrowing costs ever secured in the US corporate bond market. The rate on 3Y notes was below the previous record low of 0.45% reached in 2012 and 2013 by companies including Apple, IBM and Walt Disney.
The full breakdown of Amazon's deal pricing is as follows, courtesy of Bloomberg:
- $1b 3Y Fixed (June 3, 2023) at +25
Guidance +25#, IPT +40 area
- $1.25b 5Y Fixed (June 3, 2025) at +50
Guidance +50#, IPT +65 area
1-month par call, MWC
- $1.25b 7Y Fixed (June 3, 2027) at +70
Guidance +70#, IPT +85 area
2-month par call, MWC
- $2b 10Y Fixed (June 3, 2030) at +85
Guidance +85#, IPT +105 area
3-month par call, MWC
- $2.5b 30Y Fixed (June 3, 2050) at +110
Guidance +110#, IPT +130 area
6-month par call, MWC
- $2b 40Y Fixed (June 3, 2060) at +130
Guidance +130#, IPT +150 area
6-month par call, MWC
As the FT summarizes the issuance, "the rate on the new three-year note was less than two-tenths of a percentage point above the rate investors charged the US government when it issued debt of a similar maturity in May — a stunning turn for a company whose debt was considered junk as recently as 2009." And since US debt issuance is about to explode, it wouldn't be surprising if Amazon's debt will prices through Treasurys.
Compare Amazon cost of debt to 2017, when the online monopolist paid 1.9% on a three-year note to fund its takeover of the grocer Whole Foods Market.
Amazon’s new 7- and 10-year issues carried coupons of 1.2% and 1.5%, respectively, also the lowest ever in the US corporate bond market, toppling a record set by the retailer Costco earlier this year. The coupon on Amazon’s new five-year bond matched a low set by the drugmaker Pfizer in May, at 0.8 per cent. The company also issued 30-year and 40-year debt.
Investors have been clamouring to lend to blue-chip companies since the Fed provided an unprecedented backstop to financial markets in March, which included a promise to buy corporate bonds. The US central bank’s intervention helped to bring down corporate borrowing costs, which had spiralled to a 10-year high during the coronavirus induced sell-off in March.
"There have been companies that have benefited from this pandemic and Amazon is one of them,” said Monica Erickson, head of investment-grade corporates at DoubleLine Capital in Los Angeles. “You can shop while still abiding by social distancing. They have a lot of goodwill right now."
Amazon said it would use the cash from the new bond offering for general corporate purposes, which of course is a politically correct way to define buybacks.