Though the macro situation today is worse than what was seen during the financial crisis in some respects, it's also better in one important way: Credit markets remain pretty healthy.
With the Fed having cut its discount rate nearly to 0 and also taking aggressive steps to support corporate debt markets, a number of companies with good credit ratings have had no trouble in recent weeks issuing debt and obtaining credit facilities featuring reasonable interest rates. And some have used the occasion to refinance existing debt.
Some well-known tech companies can be found on both of those lists. Over the last week, we've seen:
- Baidu (BIDU) sell $1 billion worth of dollar-denominated debt -- $600 million in 3.075% notes due 2025 and $400 million in 3.425% notes due 2030.
- Dell Technologies (DELL) , which had over $52 billion in debt at the end of January, sell $2.25 billion worth of first lien notes that will be used to help pay down existing debt. The debt matures between 2025 and 2030, and carries interest rates ranging between 5.85% and 6.2%.
- Slack Technologies (WORK) , which has seen usage of its collaboration platform jump amid the COVID-19 pandemic, announce that it plans to sell $600 million worth of convertible senior notes due 2025.
- Workday (WDAY) obtain a term loan facility and a revolving credit facility that are worth $750 million apiece. The term loan facility's funds have to be drawn by July 15.
- Broadcom (AVGO) , which had over $44 billion in debt as of Feb. 2, offer $4.5 billion worth of senior notes -- $2.25 billion worth of 4.7% notes due 2025 and $2.25 billion worth of 5% notes due 2030. Broadcom plans to use the proceeds to repurchase (via tender offers) debt that's due to mature in 2021 and 2022.
For those companies that are looking to add more cash to their balance sheets as opposed to refinancing existing debt, one might assume that the companies are looking to guarantee that they have enough funds to weather the current downturn in the event that we don't have a rapid recovery. But a look at their balance sheets and cash-flow statements suggests that things are more complicated than that.
Baidu and Workday have each been cash-flow positive for a long time, and also have substantial net cash balances. And while Slack is still burning a bit of cash -- on March 12, it guided for fiscal 2021 (ends in Jan. 2021) free cash flow of negative $20 million to breakeven -- it also had $769 million in cash and no debt as of Jan. 31.
With that in mind, it wouldn't be surprising to see one or more of the aforementioned companies use some of the newly-raised funds for M&A. In the cases of Workday and Slack, the fact that the funding environment is now getting much tougher for cash-burning, privately-owned, software firms might help provide them with an opportunity or two.
For Workday and Baidu, which are respectively trading 43% and 45% below their 52-week highs, buying back shares that have been beaten up since February is also an option.
But regardless of how this newly-raised capital is used, it's encouraging to see major tech companies carry out 10-figure debt raises without much trouble. Odds are good that we'll see more such deals in the coming weeks.
