Alphabet has decided to float the first 100-year bonds since the dot-com era

Technology giant Alphabet is set to float extremely rare 100-year sterling-denominated bonds as part of a large-scale debt issuance, Bloomberg has learned. This will be the first placement of such long-term debt by a technology company since the late 1990s, the agency notes. Also, according to the agency, the company has already placed $20 billion worth of bonds on the U.S. market and received record demand for them: bids exceeded $100 billion.

Google's holding company's 100-year bonds will be denominated in sterling, along with four other tranches in the same currency, a source told Bloomberg on Monday. The deal, which would be Alphabet's debut pound-denominated offering, could take place as early as Tuesday, Feb. 10, the source added.

This will be the first offering of such maturity securities among technology companies since Motorola's issuance in 1997, according to Bloomberg. The market of 100-year bonds is mainly represented by government issuers and institutions like universities. For private companies such deals are rare due to risks associated with possible takeovers, business model obsolescence and technological changes, the agency explains.

Still, given the scale of borrowing needed for tech companies to lead the race to develop artificial intelligence, even extremely rare tools are returning to the market, Bloomberg notes.

"They want to attract the widest possible range of investors, from structured funds to holders of ultra-long-term securities," said KBRA Europe macro strategist Gordon Kerr. The main buyers of 100-year securities, according to him, will be insurance companies and pension funds, and "the one who signs the deal, most likely, will no longer be working by the time of maturity", ironically notes Kerr.

Alphabet's mandate to issue 100-year bonds is accompanied by a tiered U.S. dollar offering, Bloomberg writes. According to the agency, Alphabet raised $20 billion in a U.S. dollar bond offering on Monday. At the same time, the company received bids for the placement of bonds for more than $100 billion. Demand for the issue turned out to be one of the highest in the history of corporate bonds, which demonstrates the growing appetite of investors for debt of companies associated with the boom in artificial intelligence, the agency notes.

The yield on the longest portion of the issue - bonds due in 2066 - was cut from an initial 1.2 percentage point premium to 0.95 p.p. to the yield on U.S. Treasuries, Bloomberg sources said.

Google has also instructed banks to prepare possible bond offerings in Swiss francs and pounds sterling, Bloomberg claims. The company itself, as well as the banks organizing the deal Goldman Sachs, JPMorgan Chase and Bank of America declined to comment to Bloomberg.

High demand from UK pension funds and insurers has made this market one of the key markets for borrowing with long maturities, Bloomberg writes. However, with the exception of government issuers, only Electricite de France SA, Oxford University and Wellcome Trust Ltd. issued 100-year bonds in pounds, the agency writes.

All of these securities were placed in 2021 - at a time when yields on investment grade sterling corporate paper have hit record lows. But due to extremely high duration - interest rate sensitivity - all three issues are now trading well below par.

Not all long-term bonds survive their entire maturity. For example, retailer J.C. Penney Co. filed for bankruptcy in 2020 - just 23 years after issuing its 100-year securities.

Alphabet last entered the dollar market in November, raising $17.5 billion in a deal that drew about $90 billion in demand. That deal included a 50-year bond, the longest-dated bond floated by a technology company in U.S. dollars in all of last year, according to data compiled by Bloomberg. The securities later narrowed spreads in the secondary market. That's when Alphabet placed €6.5 billion ($7.7 billion) of bonds in Europe.

The massive borrowing follows less than a week after Alphabet said capital expenditures due to AI investments will reach $185 billion this year - double last year's level.

Other tech companies including Meta Platforms and Microsoft are also planning massive spending on AI. Morgan Stanley estimates that borrowing by the largest cloud solution providers will reach $400 billion this year, compared to $165 billion in 2025. Cumulatively, hyperscalers could target as much as $660 billion in investments this year, CNBC estimates.

This article was AI-translated and verified by a human editor