The 100-year tranche raised 1 billion pounds and comes with a 6.125% interest rate.
It comes with a 6.05% yield.
Google's new bonds are also unique among recent tech deals for a lack of covenants protecting investors, according to analysts at Covenant Review. Tech bonds typically include covenants, such as an interest coverage ratio, which ensure the company is able to service its debt through operating income.
"The Alphabet bonds have no meaningful restrictive covenants," the analysts wrote in a Monday note. "While this may be a low-risk issuer, this is bad market precedent since other 'tech giants' do have covenants.
The analysts also highlighted the bonds are not guaranteed by subsidiaries and lack protection against future subordination to other Alphabet debt.
Wow, those are terrible terms. Decent return, though that's assuming Alphabet exists in its current form in a century. There are so many basic accounting tricks that could let them just walk away...
Wow, those are terrible terms. Decent return, though that's assuming Alphabet exists in its current form in a century. There are so many basic accounting tricks that could let them just walk away without paying, if they decided the hit to reputation was worth it.
Generally there are rules in place that say they'll honor the debt, that the borrower won't borrow money later and prioritize those loans over the current one, the loan will pass through to the...
Generally there are rules in place that say they'll honor the debt, that the borrower won't borrow money later and prioritize those loans over the current one, the loan will pass through to the subsidiaries if Alphabet itself goes under, basically all the stuff you'd expect from a loan being handled in good faith. This doesn't have that, and so investors are really open to being screwed in basic ways.
The tech giant on Tuesday issued an extremely rare corporate bond that matures 100 years from now, part of a multibillion-dollar borrowing spree the company is undertaking to fuel its AI ambitions.
Now, let’s just underline that for a second: Google, a nearly $4 trillion public company with more than $73 billion in free cash flow annually, is turning to debt markets to raise even more money. That’s because even Google’s $126 billion cash on hand starts to look pretty paltry when the company says it plans to double its AI spending this year – to a staggering $185 billion.
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Companies don’t typically launch such extremely long-dated bonds because companies don’t tend to last forever. People also don’t tend to live that long or enjoy it much if they do. If you’re a regular investor buying a Google century bond today, you’re not going to be around to see it mature, let alone do much with it. You can’t take it with you, after all.
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There is a market for these hundo bonds, but it’s not huge. They really only make sense for high-level institutional investors, like life insurance companies and pension funds that have long-term liabilities to cover.
So far, at least, it seems the market is more than willing to extend Alphabet some credit. And by some credit, I mean a boatload: The company raised nearly $32 billion in less than 24 hours, according to Bloomberg, which first reported the 100-year bond offering. Alphabet sold British pound- and Swiss franc-denominated debt Tuesday, following a $20 billion debt sale in the US the day before. The 100-year bond was nearly 10 times “oversubscribed,” meaning investor demand far outstripped supply.
So while the hundo bond is an unusual offering with some ominous historical precedents (particularly in tech), there’s clearly some hunger for it.
For fellow finance heads who want to know the yield and underlying terms for the 100 year tranche:
Wow, those are terrible terms. Decent return, though that's assuming Alphabet exists in its current form in a century. There are so many basic accounting tricks that could let them just walk away without paying, if they decided the hit to reputation was worth it.
For a layman, "no meaningful restrictive covenants" mean?
Generally there are rules in place that say they'll honor the debt, that the borrower won't borrow money later and prioritize those loans over the current one, the loan will pass through to the subsidiaries if Alphabet itself goes under, basically all the stuff you'd expect from a loan being handled in good faith. This doesn't have that, and so investors are really open to being screwed in basic ways.
From the article:
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