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Meta plans $7B bond issue

reuters.com

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Re: Meta plans $7B bond issue

#61

Post by almog »

dogma1138 wrote: post #56
misterprime wrote: post #3

I know Facebook/Meta is huge and well established, but a 40 year bond seems like an eternity in the tech world. Is Meta that entrenched that people are this confident that they'll still be around in 40 years? Perhaps there's a lot more to their staying power and value than some web pages, apps, and VR hardware, but I'm not very aware of it. I did note in an article a couple weeks ago that they participate in groups t…

Quite possibly some of the strategy behind this is to improve their staying powers. If institutional investors hold bonds with 40 year maturity in Facebook they might be less inclined to invest in companies that might upend them.

> If institutional investors hold bonds with 40 year maturity in Facebook they might be less inclined to invest in companies that might upend them.

They have no obligation to hold these bonds to maturity.

Re: Meta plans $7B bond issue

#62

Post by brotoss »

hn_throwaway_99 wrote: post #46
brotoss wrote: post #40

Earlier quoted context omitted.

interest tax shield it's beneficial for companies to raise debt and pay interest

That makes 0 sense without more context or information. Even if interest is a tax deductible expense, it doesn't make sense to spend a dollar to save 30 cents.

Taking on debt can lower your cost of capital. In a vacuum raising debt increases the value of a company too. Its just corporate finance theory

Re: Meta plans $7B bond issue

#63

Post by slashdev »

kevinventullo wrote: post #60
slashdev wrote: post #18

This is interesting, these will be low risk bonds with a better yield than treasuries. It could be a safe place to park money during the coming recession and get paid for waiting. Up to 40 year duration, although long duration bonds carry a very large interest rate risk and either make lots of money on a fed pivot or lose lots of money if inflation doesn’t drop and rates go higher.

You think banking on Facebook being around in 40 years is low-risk?

Not really, but there are bonds of many durations, not just 40 years. You also do not have to hold them to maturity.

Re: Meta plans $7B bond issue

#64

Post by slashdev »

nafey wrote: post #59
slashdev wrote: post #18

This is interesting, these will be low risk bonds with a better yield than treasuries. It could be a safe place to park money during the coming recession and get paid for waiting. Up to 40 year duration, although long duration bonds carry a very large interest rate risk and either make lots of money on a fed pivot or lose lots of money if inflation doesn’t drop and rates go higher.

Why are they low risk? There is a significantly higher chance of meta defaulting than us govt on a 40 year horizon. Also wouldn't higher interest rates be beneficial for Meta (and worse for lenders) because Meta will be able to lock in the comparatively lower interest rates now for the next 40 years?

Higher interest rates in the future are good for Meta, bad for people holding the long duration bonds. And visa versa.

Meta bonds would have a very high rating, and a very low risk of default. Not as good as bonds from Apple or Microsoft, but better than most corporate paper.

I wouldn’t want to hold them for 40 years though. My personal view is meta is the tech giant least likely to remain a going concern.

Re: Meta plans $7B bond issue

#65

Post by jsnell »

tootie wrote: post #32
bastawhiz wrote: post #10

If meta needs to lay off tens of thousands of people to make their financials look good enough to appeal to investors, that suggests to a layman like me that they weren't turning enough profit per employee to justify the things those people are working on. This comes, notably, after raising $10B last year before the layoffs. So besides stock buybacks, what does it actually mean "to build a more traditional balance sh…

Compare to Apple who has been crazy profitable but who opted to pile up a cash hoard. Meta and Google and some others saw every spare billion as an opportunity to hire another moonshot team to build AI/VR robot cars. All that stuff was funded by their main businesses. Now they are basically giving up. Stick to their core businesses and just keep the cash.

Meta wasn't just pouring money into moonshots. They returned $45 billion to shareholders in 2021 and $28 billion in 2022, via stock buybacks.

Re: Meta plans $7B bond issue

#66

Post by hnfong »

slashdev wrote: post #18

This is interesting, these will be low risk bonds with a better yield than treasuries. It could be a safe place to park money during the coming recession and get paid for waiting. Up to 40 year duration, although long duration bonds carry a very large interest rate risk and either make lots of money on a fed pivot or lose lots of money if inflation doesn’t drop and rates go higher.

Be careful, SVB went bust because they invested heavily into long term debt securities and got a big haircut when interest rates rose steeply in 2022.

At 40 year duration even a 1% interest rate hike could greatly affect the market price of the bond. While the market seems to be betting that rates won't rise much more, the possibility of stagflation isn't off the table yet IMHO.

Re: Meta plans $7B bond issue

#67

Post by blsapologist42 »

misterprime wrote: post #3

I know Facebook/Meta is huge and well established, but a 40 year bond seems like an eternity in the tech world. Is Meta that entrenched that people are this confident that they'll still be around in 40 years? Perhaps there's a lot more to their staying power and value than some web pages, apps, and VR hardware, but I'm not very aware of it. I did note in an article a couple weeks ago that they participate in groups t…

Bondholders get the $$ first when a company goes under. And typically businesses don't completely disappear and lose all their assets. They usually have a slow decay then get acquired by someone else who takes over the debt.

In any case these factors will presumably lead to an interest rate premium for bondholders. It's just a question of whether you want to take the risk or not.

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