By Joy Wiltermuth
PayPal Holdings Inc. hit the market on Monday with a $3 billion corporate bond financing to help the online money-transfer and payments giant fund a $2 billion tender offer for its own debt.
The four-part bond deal included the issuance of new debt that matures in five to 40 years, most of which PayPal (NAS:PYPL) plans to use to finance a concurrent tender offer for $2 billion of its outstanding bonds, according to a public filing .
Climbing rates as the Federal Reserve works to reverse its easy-money pandemic stance have led to a painful stretch for bond investors in 2022, sending bond prices tumbling to lows last seen in the wake of the 2008 financial crisis and raising borrowing costs for major U.S. companies.
On the flip side, investors like the meatier yields being offered. PayPal’s new $1 billion slug of 10-year bonds, with A3 ratings from Moody’s and A- from S&P Global, priced at a spread of 155 basis points above the risk-free Treasury rate, according to a person with direct knowledge of the dealings.
With the 10-year Treasury rate (XTUP:BX:TMUBMUSD10Y) pegged near 2.877%, plus the spread, that equates to a 4.4% coupon for the new bonds due in a decade. Its 30-year notes, paying a spread of 215 basis points above the 30-year (XTUP:BX:TMUBMUSD30Y) rate, translates to a 5.25% coupon.
Companies have been eager to pay higher costs to get ahead of potentially worsening borrowing conditions down the road, particularly with the Fed looking to quickly raise rates this year, despite the carnage in stocks, bonds and elsewhere. Prices for bonds move in the opposite direction as yields.
“In our view, the absolute direction of the market still hinges on top-down drivers, specifically the interaction between the inflation signal and the policy response,” Goldman Sachs credit analysts wrote in a weekly note. “And as of yet, this interaction is not sufficiently predictable to translate into a sustained improvement in risk appetite.”
PayPal’s stock price closed 1.5% lower Monday, while the technology-heavy Nasdaq Composite Index’s (NASDAQ:COMP) shed 1.2% to kick off the week and the S&P 500 index (S&P:SPX) closed down 0.4%. That added to the Nasdaq’s 25.5% tumble in 2022, compared with a 58.8% drop this year for PayPal’s stock, according to FactSet.
But PayPal’s maturing debt — and subject to the company’s tender offer — rallied (see chart) in secondary trading Monday, according to BondCliQ data.
PayPal said it wants to purchase $1 billion of its 2.2% coupon bonds coming due later in 2022 and $1 billion of its 1.35% notes due 2023, with proceeds. The tender offer is for cash, and is expected to run through May 23.
Some of PayPal’s longer-dated bonds (see green above), specifically debt due June 2050, also got a boost in trading Monday. Prices for that debt still were around $78, down from about $93 three months ago, according to BondCliQ. Bonds typically are issued at $100.
The payments giant first launched a crypto feature in the U.S. in 2020 to let users buy, sell and hold cryptocurrencies. Bitcoin (COINDESK:BTCUSD) has since tumbled 69% from its November peak, according to Dow Jones Market Data, while other parts of the fledgling digital-asset industry also have come under sharp selling pressure.
PayPal did not immediately respond to a request for comment.