Bloomberg News

Google Borrows $1 Billion With First Bond Sale in Three Years

February 20, 2014

Google

Google is choosing to refinance obligations even after reporting cash and equivalents of more than $60 billion at year- end, according to data compiled by Bloomberg. Photographer: David Paul Morris/Bloomberg

Google Inc. (GOOG:US) sold bonds for the first time in three years, borrowing funds to refinance $1 billion of maturing debt (GOOG:US) even after its cash hoard swelled to a record of more than $60 billion.

The owner of the world’s largest search engine issued 3.375 percent, 10-year notes that yield 62.5 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Proceeds may be used to repay the company’s $1 billion of 1.25 percent notes due May 19, Mountain View, California-based Google said today in a regulatory filing.

Google is choosing to refinance obligations instead of tapping a portion of its $60.7 billion (GOOG:US) cash and equivalents, according to Bloomberg data, that co-founder Larry Page has used to invest in connected devices, business services and mobile applications. The leader of Internet search has also executed more deals than any company in the world in the three years through January.

“Google has consistently said that it views its large cash balance as a strategic weapon given the pace of innovation around it and the investment options it sees,” Morningstar Inc. said in a report that estimated fair value of the new bonds at about 70 basis points more than Treasuries.

‘Very Conservative’

“We also expect the firm will remain very conservative with its balance sheet, maintaining access to the debt markets primarily to enhance financial flexibility should its domestic cash balance ever run low,” Morningstar wrote in the report.

Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley managed today’s offering, Bloomberg data show.

Google is rated Aa2 by Moody’s Investors Service and an equivalent AA at Standard & Poor’s. Average yields for similarly rated issuers from Apple Inc. to International Business Machines Corp. were 2.3 percent yesterday for debt maturing in about nine years, Bloomberg data show.

More than half of Google’s cash was held by foreign units at year end, leaving the company subject to U.S. taxes on the funds if the money were repatriated, according to a Feb. 12 regulatory filing.

Google sold the debt as corporate credit risk declined. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, decreased 1.5 basis points to 64.7 basis points as of 4:35 p.m. in New York, according to prices compiled by Bloomberg. The measure dropped from 66.2 basis points yesterday, the highest closing level since Feb. 10.

‘Risk Assets’

Economic data releases “helped give a little bit of a lift to risk assets still struggling to digest the hawkish tone of yesterday’s Fed minutes,” Edward Marrinan, a credit strategist at RBS Securities, said in a telephone interview from Stamford, Connecticut.

Reports today showed the Markit Economics preliminary index of U.S. manufacturing increased to 56.7 in February, surpassing economists’ estimates, while Labor Department figures indicated fewer Americans filed applications for unemployment benefits last week.

Federal Reserve officials said they would soon have to modify their year-old commitment to keep their benchmark interest rate near zero until unemployment falls below 6.5 percent, according to minutes released yesterday of their January meeting, where they also decided to press on with a second cut of $10 billion to the central bank’s bond buying.

The swaps gauge typically falls as investor confidence improves and rises as it deteriorates. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Commercial Paper

The seasonally adjusted amount of U.S. commercial paper climbed $37.1 billion to $1.028 trillion outstanding in the week ended yesterday, the Fed said today on its website. That’s the biggest increase since a $71.5 billion jump for the period ended Jan. 26, 2011.

Commercial paper sold by non-U.S. financial institutions rose $25.5 billion to $262.5 billion outstanding, the biggest increase since the period ended Jan. 2, 2013, according to the Fed. Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.

To contact the reporters on this story: Charles Mead in New York at cmead11@bloomberg.net; Jessica Summers in New York at jsummers20@bloomberg.net

To contact the editor responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net


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