Amazon Bond Sale Greeted Rudely by Moody’s

The online retailing giant's new debt issue would weaken interest coverage and hurt Amazon's debt-to-EBITDA ratio, says Moody's.
Matthew HellerDecember 2, 2014
Amazon Bond Sale Greeted Rudely by Moody’s has announced it is planning its first bond offering in two years, a move that Moody’s greeted by trimming the online retailer’s credit rating outlook to negative.

Amazon gave few details of the offering in a regulatory filing Monday, saying only that it would sell four tranches of senior unsecured notes and the proceeds would be used for “general corporate purposes, which may include repayment of debt, repurchases of outstanding shares of common stock, acquisitions, investments, working capital, investments in our subsidiaries and capital expenditures.”

The company’s last bond offering, which raised $3 billion, was in November 2012. Amazon had $6.9 billion in cash and investments at the end of the third quarter and $3.1 billion in debt.

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The announcement of the new offering prompted Moody’s to change its outlook on Amazon to “negative” from “stable,” citing “the impact the new debt will have on interest coverage that is already weak at 1.2 times for the [last 12 months up to] September 2014, as well as debt/EBITDA, which will increase meaningfully as well.”

Nevertheless, Moody’s affirmed its Baa1 senior unsecured rating for Amazon, three levels above junk. “While the new debt will further exacerbate Amazon’s already weak interest coverage … Moody’s believes that the company’s excellent liquidity provides sufficient cushion to affirm the Baa1 rating,” Moody’s Vice President Charlie O’Shea explained in a statement.

The rating also recognizes Amazon’s dominant position in online retailing, the rating service said, though Moody’s believes it is “facing increased competition from brick-and-mortar retailers as they morph their successful businesses online.”

In October, Amazon posted its biggest quarterly net loss since at least 2003. As Bloomberg reports, the company’s falling stock price “underscores the lack of investor support for Chief Executive Officer Jeff Bezos’s emphasis of spending big and counting on sales growth over earning a profit.”

CFO Thomas Szkutak recently said the company had “to be cautious” with its investments, but emphasized Amazon’s strategy of investing in growth.

The new debt offering offer will be underwritten by Morgan Stanley, Merrill Lynch, Deutsche Bank and HSBC Securities. Moody’s said it did not expect that the proceeds would be used for any form of shareholder return.

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