The bond market is giving Amazon.com’s (Nasdaq: AMZN) bond sale a better credit rating than the one offered to Tesla ( TSLA) investors last week.
On Tuesday, Amazon announced plans for a seven-part bond sale with maturities ranging from three to 40 years to help fund its $13.7 billion buyout of Whole Foods Market ( WFM).
Credit rating agency Moody’s gave the $16 billion in senior secured notes Amazon is hoping to sell a credit rating of Baa1. That rating places the Amazon bonds at the low end of the investment-grade spectrum, eight levels above Tesla’s B3-rated bonds. Tesla turned to the bond market to raise $1.8 billion in cash to help fund Model 3 production.
[Read: Will Partnering With Amazon.com Save Retailers?]
For investors, bonds provide a much lower-risk, lower-reward way to invest in Amazon than buying its pricey and volatile stock.
In addition to rating its new bonds, Moody’s also upgraded Amazon’s overall rating outlook from “stable” to “positive.” Moody’s vice president Charlie O’Shea says the Whole Foods deal was a central part of the upgrade decision.
“The change in outlook to positive reflects our view that despite the increase in debt, the Whole Foods acquisition is an immediate credit positive for the company on a variety of fronts,” O’Shea says in a statement.
CreditSights analyst Jordan Chalfin says investors shouldn’t hesitate to buy any of the new Amazon bonds.
“We are comfortable buying Amazon’s bonds across the entire curve given its strong operating trends and competitive position in both its e-commerce and cloud computing businesses,” Chalfin says.
[Read: What Industry Will Amazon Enter Next?]
Amazon has not yet announced yields for its new bonds, but Chalfin says investors should expect the 10-year notes to price roughly 1.10 percent higher than comparable U.S. Treasury yields, which would put the new 10-year Amazon bonds at roughly a 3.4 percent yield.
At a 3.4 percent yield, Amazon’s 10-year notes would be on-par with similar bonds offered by large technology rivals Oracle Corp. ( ORCL), Intel Corp. ( INTC) and Apple ( AAPL), Chalfin says.
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Amazon’s Bonds Get a Seal of Approval originally appeared on usnews.com
