Alphabet on Tuesday sold a rare 100-year bond, a memo from the lead manager showed, part of a $31.51 billion global bond raise, as artificial intelligence-driven spending sparks a surge in borrowing at U.S. tech giants.
Alphabet’s sale of the century bond is the tech industry’s first since Motorola’s issuance that dates back to 1997, according to LSEG data.
“You have an extraordinary time period that we’re living through now with the change in technology,” said Jason Granet, chief investment officer at BNY.
“Today it comes with a 100-year debt issuance out of Google … That’s representative and indicative of a lot of the capital spending, a lot of the investment that’s going through in markets and technology.”
The company sold 5.5 billion pounds’ ($7.53 billion) worth of sterling bonds in a five-part deal, according to the final term sheet seen by Reuters. The 100-year tranche raised 1 billion pounds and comes with a 6.125% interest rate.
Google’s century bond was met with demand nearly ten times the one billion pounds sought, according to IFR data. It comes with a 6.05% yield.
The Google parent also raised 3.055 billion Swiss francs ($3.98 billion) through a five-part bond sale spanning maturities of three to 25 years, according to a memo from a separate bookrunner.
The bookrunners declined to be named as they are not authorized to speak publicly.
No restrictive covenants
There is solid demand for ultra-long-term bonds, especially from life insurers, pension funds and endowments with long-term obligations, given a relative dearth of long-end corporate bond issuance, said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors.
Along with the extended maturity, 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.
Alphabet was not immediately available to comment.
Rare century bond sale
The sale of a century bond is a rarity. Sales of such bonds grew during the period of ultra-low interest rates that followed the global financial crisis of 2008. But they died down after 2022 as central banks raised interest rates sharply in the aftermath of the COVID-19 pandemic.
Alphabet shares were down 1.78% at the close on Tuesday.
The Google parent also sold bonds worth $20 billion in a seven-part offering on Monday that mature every few years, starting in 2029, and go all the way up to 2066.
Big Tech’s pivot to the bond market has raised investor concerns as payoffs have not kept pace with the huge AI spending from U.S. tech giants, while businesses adopting the technology have so far seen limited productivity gains.
Capital expenditure from Alphabet, Microsoft, Amazon.com and Meta Platforms is expected to total at least $630 billion this year, with most of the spending focused on data centers and AI chips, according to Reuters calculations.
Long-term infrastructure
Some analysts said Big Tech’s greater use of debt reflects a pivot from asset-light models toward long-term infrastructure.
“Century bonds are usually the preserve of governments or regulated utilities with very predictable cash flows, so this deal shows that, at least for now, investors are willing to take on very long-dated risk tied to AI investment,” said Lale Akoner, global market analyst at eToro.
The century bond’s inexpensive nature makes it an ideal option from an issuer’s perspective, according to Piers Ronan, head of debt capital markets at Truist Securities.
“From an investor’s perspective, buying it is a great idea because its duration risk is not much higher than the 30-year,” Ronan said, adding that only a handful of companies have taken out century bonds in the dollar market since the global financial crisis.
The Google parent also sold bonds worth $20 billion in a seven-part offering on Monday that mature every few years, starting in 2029, and go all the way up to 2066. (Image: Reuters) 
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