Google Parent Joins $100 Billion Technology Rush to Bond Market

Google parent Alphabet Inc. sold $2 billion of bonds Tuesday, joining a rush of issuance from technology companies that have already raised more than $100 billion this year.

In its first trip to the bond market in more than two years, the Internet giant sold 10-year notes to repay short-term debt, according to a person familiar with the matter. The debt yields around 0.68 percentage points above Treasuries, said the person, who asked not to be named because the deal is private. That was lower than the 0.8 discussed initially and compares with an average spread of 0.91 percentage points for bonds of similar ratings and maturities, according to Bank of America Merrill Lynch index data.

Technology companies have been among the year’s leading issuers of U.S. investment-grade debt, selling $102.7 billion of bonds so far in 2016, according to data compiled by Bloomberg. That’s the most of any non-financial sector and about $5 billion less than they sold in all of 2015. Apple Inc., Dell Inc. and Microsoft Corp. hold three of the top five spots for total issuance this year.

On Monday, Microsoft Corp. sold $19.75 billion of bonds to help finance its planned acquisition of LinkedIn Corp., while Apple Inc., last week issued $7 billion of bonds to fund dividend payments and share buybacks. Investors piled into both deals, allowing the companies to cut the interest they pay on the securities. Low and even negative bond yields on government debt globally have given investors an incentive to buy corporate bonds, which typically offer higher returns.

Google’s parent had hinted that it might look to sell debt soon. In a conference call with investors last week, Alphabet Chief Financial Officer Ruth Porat said that the technology company may "opportunistically access the market" to refinance short-term debt known as commercial paper and lock in low bond yields. 

Alphabet’s bonds are relatively safe, said Alex Oxenham, portfolio manager at Hilton Capital Management, which manages $850 million including Google debt, but does not plan to buy the new bonds. Owning Alphabet bonds "certainly beats owning Treasuries," he said, adding that the notes offer more yield than government securities without too much more risk.

Moody’s Investors Service rated the bonds Aa2, its third-highest grade, according to a statement on Tuesday. S&P Global Ratings said it graded the bonds the equivalent AA rank. JPMorgan Chase & Co. and Morgan Stanley are managing the sale, according to a company filing.

Tech companies have been issuing bonds in part to avoid taxes on overseas cash. They would have to pay a 35 percent tax to repatriate those funds to the U.S. Rather than use the offshore cash to fund debt repayments, acquisitions and shareholder rewards, it is far cheaper for large multinationals to borrow the funds domestically. 

Alphabet had $78.5 billion of cash on its books as of June 30, according to data compiled by Bloomberg. About $30 billion of Google’s cash was in the U.S. as of the end of the quarter, Porat said on the company’s latest conference call.

Google, based in Mountain View, California, last sold bonds in 2014, when it issued $1 billion of 10-year notes for general corporate purposes, including debt repayment. Its parent company exchanged Google notes for Alphabet debt earlier this year, according to a company statement.

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