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Google Planning to Sell First-Ever Bond Offering

Source: WSJ - Kellie Geressy-Nilsen

Posted on 16 May 2011

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Capitalizing on near-record-low rates and insatiable appetite for corporate debt, Google Inc. is planning to sell its first-ever bond offering.

The world's largest Internet search company said the $3 billion offering will include three-, five- and 10-year portions. It is expected to be sold later Monday via joint bookrunners Citigroup Inc., J.P. Morgan Chase & Co. and Goldman Sachs Group Inc.

Preliminary price guidance on the $3 billion offering suggests a yield in the area of 0.35 percentage point above 10-year Treasurys for the three-year piece; in the area of 0.45 percentage point above Treasurys on the five-year piece; and in the 0.60 percentage-point area for the 10-year piece.

The deal has been rated Aa2 by Moody's Investors Service and AA- by Standard & Poor's. Settlement is slated for May 19.

"We plan to use the proceeds to repay outstanding commercial paper and for general corporate purposes," according to a Google representative who declined further comment.

While the company won't firmly say what net proceeds will be used for, one likely route will include expansion, given the company's massive reorganization and strategy under new Chief Executive Larry Page. Mr. Page, one of the company's co-founders, succeeded Eric Schmidt as CEO in April.

In a conference call last month, Mr. Page said he was "very optimistic" about the Google future but noted room for improvement.

Although Google is sitting on a mountain of assets, including $35 billion in cash, the company—like many others—is clearly taking advantage of extremely low borrowing costs, which are at their lowest levels in years.

The average yield on investment-grade debt sold in the U.S. was last quoted at 3.8%, according to the Bank of America Merrill Lynch index.

In addition, some of the company's billions of dollars in cash is likely tied up offshore and would be subject to severe taxes if the company were to bring it back to the U.S.