Twitter Inc (NYSE:TWTR) is planning to raise of $1.5 billion through debt to invest in acquisition and expansion. The micro blogging company will sell the convertible bonds in two $650 million pieces, one will have a maturity period of five years and other will be due in seven years, according to a regulatory filing. The offering size may rise to $1.5 billion if the banks involved exercise an over-allotment option.
Twitter following Google, Netflix
Twitter is expected not to post a profit this year, but still needs to shell out money to ramp up its advertising business and add engineers, who can enhance the products offerings to create a larger user base.
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Management at Twitter can sense an opportunity in the debt market to raise more cash at lower cost with slightly diluting the shareholder’s ownership, says Bloomberg citing a source familiar with the matter. It appears that Twitter is influenced by the tech giants such as Google Inc and Netflix, who offered debt to keep the cost of borrowing low, says the report.
Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), which is the largest internet search engine, raised capital by selling bonds in February, for the first time in three years, to refinance $1 billion of its maturing debt, while Netflix sold $400 million of senior-notes to increase its capital spending.
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What’s interesting is that the decision follows the replacement of Mike Gupta as the company’s chief financial officer (CFO). Anthony Noto, a former Goldman Sachs Group banker, who backed Twitter in IPO launch on November 6, took the position of Mr. Gupta. The source revealed that Goldman Sachs and Morgan Stanley are the primary companies offering debt to the company.
“This is Noto’s first real impact on the company,” said Robert Peck, an analyst at SunTrust Robinson Humphrey Inc. Peck said that Noto is smart and financially savvy, and knows the markets that give a chance to raise capital at low cost.
A data from Bloomberg revealed that the companies are selling large amount of debt to raise capital at cheaper rates in the wake of almost zero interest rate from Federal reserve. For the first eight month high of the year, corporate bond sales totalled to $1.07 trillion, which is an all-time high. Technology companies in the United States have issued $57 billion in debts so far compared to $63 billion in the same period last year.