Amazon locked in some of the lowest borrowing costs ever secured in the US corporate bond market on Monday, underscoring the rise of the ecommerce giant during the coronavirus pandemic and the boost the Federal Reserve has provided through its historic interventions.
The company raised $10bn in an offering that included three-year notes carrying an interest rate of just 0.4 per cent, according to people briefed on the matter.
The interest on the new three-year note was less than two-tenths of a percentage point above the rate investors charged the US government when it issued debt of a similar maturity in May — a stunning turn for a company whose debt was considered junk as recently as 2009.
Amazon paid 1.9 per cent on a three-year note when it last tapped bond markets in 2017, to fund its takeover of the grocer Whole Foods Market.
The rate it secured on Monday was below the previous record low of 0.45 per cent secured in 2012 and 2013 by companies including Apple, IBM and Walt Disney.
Companies are looking at these yields and thinking they should be issuing. This is an ideal opportunity to come in and refinance existing bonds or add new debt
Peter Tchir, Academy Securities
Amazon’s new seven and 10-year borrowings carried coupons of 1.2 per cent and 1.5 per cent, respectively, also the lowest ever in the US corporate bond market, toppling a record set by the retailer Costco earlier this year, according to the financial data provider Refinitiv, whose records go back to 1980.
The coupon on Amazon’s new five-year bond matched a low set by the drugmaker Pfizer in May, at 0.8 per cent.
The company also issued 30-year and 40-year debt.
Investors have been clamouring to lend to blue-chip companies since the Fed provided an unprecedented backstop to financial markets in March, which included a promise to buy corporate bonds. The US central bank’s intervention helped to bring down corporate borrowing costs, which had spiralled to a 10-year high during the coronavirus induced sell-off in March.
Corporate bond issuance has passed $1tn already this year, a record pace.
Amazon’s $10bn bond offering was more than three times subscribed, people briefed on the matter said.
“This month is starting off with a bang,” said Peter Tchir, chief macro strategist at Academy Securities in New York. “Companies are looking at these yields and thinking they should be issuing. This is an ideal opportunity to come in and refinance existing bonds or add new debt.”
Amazon stands out as one of the companies to have benefited from the policy response to contain Covid-19, with the closure of non-essential stores pushing more consumers to shop online.
Its revenues surged to $75.5bn in the first quarter of 2020 from $59.7bn in the same period a year ago. However, soaring expenses shaved 30 per cent off its profits.
“There have been companies that have benefited from this pandemic and Amazon is one of them,” said Monica Erickson, head of investment-grade corporates at DoubleLine Capital in Los Angeles. “You can shop while still abiding by social distancing. They have a lot of goodwill right now.”
Amazon said it would use the cash from the new bond offering for general corporate purposes.
The company is in advanced talks to acquire Zoox, a San Francisco-based self-driving car start-up, for an undisclosed amount. Zoox was valued at $3.2bn in October 2018.
