Meta’s Bond Sale Shows New Reality for Tech Debt

(Bloomberg) -- Selling billions of dollars of corporate bonds on Election Day seemed like a real gamble.

But to Meta Platforms Inc., waiting seemed like an even bigger one.

The Facebook parent aimed to sell $25 billion of bonds this quarter, and took the unusual step of launching the offering on Tuesday Nov. 3, as US voters went to the polls. Breaking with convention may have been the right move, however, as a sweeping victory by Democrats in the midterms now threatens to make financing artificial intelligence investment more difficult and expensive.

The fear is that a Democratic majority in Congress will slow the pace of AI development, cutting into cash flow for companies expecting their data center projects to generate income. US equities dropped on Thursday, and risk premiums on tech bonds climbed over the week.

Even before Election Day, money managers had become more wary of the amount of bonds that big tech companies known as hyperscalers have sold. As fund managers grow more concerned about the debt, firms looking to borrow have started using the kind of careful timing and communication that is more common in junk debt markets.

"Investors are demanding a higher premium and much greater clarity on how enormous AI capital expenditure will translate into revenue and free cash flow," said Jack Daley, a portfolio manager at TwentyFour Asset Management. "Hyperscalers have started to guide the market more on the timings of deals and on when positive free cash flow will return," added Daley.

Oracle Corp., for example, assured investors on Monday it was only borrowing $10 billion, a figure that wouldn't grow, and that it was selling a similar amount of equity. It had to pay yields a hefty 0.35 percentage point above levels on its existing debt.

Meanwhile, Meta had been looking to borrow in late October or early November to fund its artificial intelligence investments after being largely cut out of the market earlier due to a quiet period before earnings. Later in October, a $25 billion bond sale from Microsoft Corp. complicated its plans by absorbing a large amount of investor capital. On Monday, Alphabet sold €6 billion ($6.7 billion) of notes, the same day that Oracle borrowed in the US.