Amazon blocked some of the lowest borrowing costs ever in the U.S. corporate bond market on Monday, underlining the e-commerce giant’s rise to power during the coronavirus pandemic and the boost the Federal Reserve has given provided thanks to its historic interventions.
The company raised $ 10 billion in an offer that included three-year bonds bearing an interest rate of just 0.4%, according to people briefed on the matter.
Interest on the new three-year note was two-tenths of a percentage point lower than the rate investors charged the U.S. government when it issued debt with a similar maturity in May – a surprising turning point for a company whose debt was considered undesirable as recently as 2009.
Amazon paid 1.9% on a three-year note when it last appealed to the bond markets in 2017, to fund its buyout of the Whole Foods Market grocer.
The rate he got on Monday was lower than the previous record of 0.45% achieved in 2012 and 2013 by companies such as Apple, IBM and Walt Disney.
Amazon’s new seven- and 10-year borrowings carried coupons of 1.2% and 1.5%, respectively, also the lowest on record in the U.S. corporate bond market, breaking a record set by retailer Costco earlier this year, according to the financial data provider. Refinitiv, whose records date back to 1980.
The coupon on Amazon’s new five-year bond was the low set by drugmaker Pfizer in May at 0.8%.
The company has also issued 30 and 40 year debt securities.
Investors have been clamoring for blue-chip corporate loans since the Fed provided an unprecedented safety net to financial markets in March that included a pledge to buy corporate bonds. The intervention by the US central bank helped lower corporate borrowing costs, which reached a 10-year high during the coronavirus-induced sell-off in March.
Corporate bond issuance has already exceeded $ 1 billion this year, a record pace.
Amazon’s $ 10 billion bond offering has been underwritten more than three times, people briefed on the matter have said.
“This month is starting with a bang,” said Peter Tchir, chief macro strategist at Academy Securities in New York. “Companies look at these returns and think they should issue. This is an ideal opportunity to come and refinance existing bonds or add new debt. “
Amazon is standing 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 reached $ 75.5 billion in the first quarter of 2020, up from $ 59.7 billion in the same period a year ago. However, soaring spending reduced profits by 30%.
“Some companies have benefited from this pandemic and Amazon is one of them,” said Monica Erickson, head of investment grade companies at DoubleLine Capital in Los Angeles. “You can shop while respecting social distancing. They have a lot of goodwill right now.
Amazon has said it will use the money 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 startup, for an undisclosed amount. Zoox was valued at $ 3.2 billion in October 2018.