eBay Inc : EBay's Debt Auction Garners Heavy Demand
07/19/2012| 03:36pm US/Eastern
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Massive demand for a $3 billion bond auction from EBay Inc. (EBAY) is allowing the e-commerce company to strengthen its balance sheet with ultra low-yielding debt Thursday.
This marks just the second time eBay has ever issued bonds, and the $3 billion size is double that of its debut offering in October 2010.
The timing could hardly be better. Corporate bond yields are at record lows--Barclays's index of high-grade debt broke the 3% barrier for the first time in four decades of data on Wednesday when a broad rally sent yields down by 0.07 percentage points to 2.98%--and issuance has been quiet with most companies focusing on releasing earnings.
The lack of competition has all kinds of buyers wanting to get a piece of the rare deal, which boasts single-A ratings from three ratings firms.
The bonds received more than $20 billion of orders, or about seven times the amount needed to complete the deal, according to market sources.
"The deal is gathering a lot of attention," said Susanna Gibbons, portfolio manager at RBC Global Asset Management.
Bonds in the secondary market have also "snapped tighter," or improved, giving investors confidence to participate in new offerings, Ms. Gibbons said.
"Even though earnings out of the big banks have been lackluster, they have been somewhat better than the market's worst fears," she said, explaining the positive mood.
A term sheet for the deal doesn't indicate how the San Jose, Calif., company intends to use the proceeds, but earlier this week eBay said its board of directors authorized the repurchase of an additional $2 billion in common stock.
Over the past 12 months, it has bought back $877 million in stock, according to Fitch Ratings.
Scott Kimball, portfolio manager at the BMO TCH Corporate Income Fund in Miami, said he expects eBay to refinance $550 million of short-term commercial paper and consider further acquisitions.
"There is a fair amount of consolidation going on in e-commerce," Mr. Kimball said. "With 4% financing and less, it should all be accretive to earnings quite easily."
The company said Tuesday it bought San Francisco-based card.io, a credit-card-scanning start-up focused on mobile phones.
The bond sale includes maturities of three, five, 10, and 30 years, with $1.75 billion maturing in 10 or 30 years. When the deal launched, the bonds were offering yields of 0.40, 0.75, 1.10, and 1.45 percentage points over the respective Treasury rates.
The planned sale comes a day after the e-commerce and payments company posted its fourth consecutive jump in quarterly profit. EBay said Wednesday its second-quarter revenue climbed 23% to $3.4 billion and profit more than doubled to $692 million from a year earlier. Much of the revenue growth derived from its PayPal division.
In a television interview with CNBC on Thursday, Chief Executive John Donahoe said PayPal is growing as the notion of a physical wallet becomes obsolete. "It's very hard to underestimate the impact of the mobile revolution," he said.
Write to Patrick McGee at patrick.mcgee@dowjones.com
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