Alphabet Launches 7-Tranche Euro Bond Sale as Debt Risks Rise
Key Facts
Alphabet opened books for its second euro-denominated bond sale this year, a 7-tranche offering with maturities ranging from two to 19 years, according to Bloomberg in a report published by The Edge Singapore. Barclays, BNP Paribas and Deutsche Bank are arranging the deal, which was expected to be priced later on Monday. The sale follows the company’s May euro bond offering, through which it raised 9 billion euros across 6 tranches. The report did not specify how proceeds from the current sale would be used. The financing comes as major technology companies’ need for capital to fund investments is growing.
Initial price guidance indicated a spread of about 60 basis points over mid-swaps for the fixed-rate two-year tranche, compared with a range of 205 to 210 basis points for the longest tranche, which matures in 19 years. These are initial indications for the offering; final pricing had not been announced when the report was prepared. The range of maturities gives investors different options for how long to remain exposed to credit risk, while the wider spread on the longest tranche shows the pricing required relative to mid-swaps. The company has maintained its forecast for capital spending of up to 205 billion dollars this year. That outlook puts financing needs at the center of investors’ focus on technology-company bonds.
The sale followed Alphabet’s results, announced the previous week, which heightened concerns about the scale of its artificial-intelligence spending and contributed to a widening in technology companies’ credit spreads. Contracts protecting against Alphabet’s default jumped 6.4 basis points on Friday, their biggest absolute daily increase, to a record of about 91 basis points. The moves reflect a higher cost of protection against default risk as the company prepares to borrow again in the bond market. In the third quarter, Alphabet’s revenue grew 25% to 127.58 billion dollars, while net income fell to 26.17 billion dollars from 34.98 billion dollars in the same period a year earlier. The company said Google Cloud revenue rose 103% to 30.7 billion dollars, with infrastructure and artificial-intelligence solutions contributing to its growth.
The borrowing comes amid a broader expansion in major technology companies’ financing through the bond market. The European Central Bank said their combined capital spending could exceed 1 trillion dollars by 2028, and that planned investments had become too large to be funded by internal cash flows alone. The bank estimated that major U.S. technology companies have about 40 billion euros of bonds outstanding, representing close to 10% of total new issuance of euro-denominated nonfinancial corporate bonds. A bank report warned that the accumulation of debt by those companies and their growing share of bond markets could raise borrowing costs for other sectors. This backdrop places Alphabet’s sale within a wave of financing that is putting pressure on Europe’s credit market and expanding technology companies’ presence in it.
Alphabet previously issued senior unsecured notes in the third quarter, with net proceeds of 28.7 billion dollars, which it said in a filing would be used for general corporate purposes. On future spending, the chief financial officer said capital expenditures would continue to increase meaningfully in 2027. She added that the company would provide further details during its fourth-quarter earnings call. That puts the trajectory of spending and investment at the forefront of the updates investors are awaiting from the company, alongside their attention to pricing of the current European sale. Alphabet shares closed at 279.84 dollars on October 30, while Deutsche Bank shares closed at 33.64 dollars on the same day.