
Amazon Is Seeking $16B Bond Sale for Whole Foods - mcone
https://www.bloomberg.com/news/articles/2017-08-15/amazon-is-said-to-sell-bonds-to-finance-whole-foods-acquisition
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ringaroundthetx
I'm still surprised more companies aren't doing it. Investment grade companies
can get 0% in the Eurozone, and eurozone junk bonds have lower yields than US
treasuries. Because they're safer? Who cares just sell the bonds.

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koolba
Even at 0% it's not risk free on the part of the company. Unless you have EUR
cash inflows, you'll be shouldering FX risk to convert to EUR (say from USD)
to make the loan payments.

This past year alone has seen a range of about 13% for USD/EUR. A shift like
that would wipe out any interest related savings.

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ThrustVectoring
FX risk is extraordinarily cheap to hedge against, the futures market is
_really_ deep.

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aianus
The cost of hedging forex is at least equal to the interest rate difference
between the currencies.

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ikeboy
Can someone who knows how that works do the math for us?

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cperciva
It's an arbitrage issue. If you can borrow EUR for 1% and it costs %1 to get a
USD/EUR hedge, you can turn around and loan USD for 2% and be guaranteed to
not lose money. The market eliminates arbitrage opportunities whenever they
appear; so if the cost of borrowing EUR is less than the cost of borrowing
USD, you'll have to pay at least the difference in order to get someone to
guarantee a rate for converting USD back to EUR later.

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ikeboy
There could in theory be other risks in EUR which prevent the arbitrage
(legal? liquidity? cost of initial transaction being high?) which is why I'd
prefer to see actual numbers bearing that out instead of just a derivation
from first principles.

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peter303
Plus some companies (which will remain unnamed) are unable to use cash parked
overseas for US purposes. But they can borrow against it at low interest rates
for capital.

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JKCalhoun
> are unable to use cash parked overseas for US purposes

"Unable."

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abritinthebay
Unable without incurring costs that make Bonds/Loans vastly more economical.

The US situation with repatriation is silly. I’m all for some level of
taxation but right now it provides a negative incentive due to interest rates.

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saosebastiao
Whole foods, as a stable profitable business, is the perfect kind of candidate
for this type of funding. Not sure why this would ever be scrutinized.

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ksec
Excuse my ignorance, 1.4 + US 10Yr Treasury is ~ 4%.

Would it not be better if they issue it with much shorter terms and hence the
lower interest rate? ( Penny Saving not worth it ? )

Could the Interest or repayment be counted against Profit? ( Amazon dont like
Profits anyway ). And hence no tax.

I have always wonder why some companies dont go Private. I suspect these bonds
could only be issued with a Listed Stock Company? How much more, in terms of
Interest rate would a private company have to paid to these bonds sold?

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hammock
Interest rates are low and rising. Compared to any other type of financing,
corporate bond issues just make sense.

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cwilkes
Next stop: Amazon offering their own credit card, outside of MasterCard/visa,
with a bond offering being a way to dip into it.

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cschneid
That doesn't make any sense. Visa & MasterCard are the intermediaries, not the
actual source of the cash. They sell their merchant network, and recreating it
would be hard (not impossible, but a lot of work not in Amazon's wheelhouse).

Chase or Citi or Wells Fargo or whoever is the bank that needs reserves and
fronts the cash to the merchant, and earns on the interest rate and fees and
takes the risk on defaults.

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cwilkes
"Earning the interest rate" is the key phrase here. With that and paying 2% in
fees Amazon is leaving money on the table. Why not become the next Citi?

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cperciva
I'd bet that Amazon is paying far less than 2% in card processing fees.

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bryanlarsen
I'd take the other side of that bet. Walmart & Costco get those rates because
they can and have played hardball in negotiations with the network, they've
shown a willingness to go without credit cards.

Amazon needs credit cards more than the credit card networks need Amazon.

Also, Amazon transactions are virtually all card not present transactions.

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rdl
If they're made on-Amazon, and to someone with a 5-15 year Amazon profile,
Prime, etc., shipped to home, etc., and with Amazon as the merchant (so
they're going to handle CS rather than chargeback), yes, I'd take the bet that
Amazon pays <2% for the Amazon Prime Chase Visa transactions for Prime
customers on amazon.com. It's pretty low risk for MOTO compared to a card used
at a random merchant online.

(Unless Amazon pays a higher fee but considers the 5% return to customers as
some kind of "increase net spend on Amazon" benefit, but I think that's just
Chase trying to kill Discover)

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ghaff
I've also wondered if the 5% back isn't something of an offset for the sales
tax they've agreed to collect in some states. It doesn't totally cover the
difference in high tax states versus ordering from someone else with free
shipping with a 1-2% rebate card but it makes the delta small enough that many
people may just default to Amazon.

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jasoninprivate
It's interesting to think of the bond market as the original kickstarter.

Also, the 40-year notes having ~4% interest seems like a pretty good deal for
Amazon.

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dx034
Isn't equity markets the kickstarter? You don't issue bonds to non-existent
companies with a fresh idea. That's what equity (usually via VC) does.

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jasoninprivate
I should have better qualified my statement as Kickstarter is used by both new
companies and ones with established revenue.

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JumpCrisscross
> _Kickstarter is used by both new companies and ones with established
> revenue_

Sure, Kickstarter is like the capital markets in that both give companies
money in exchange for promises, not goods or services. Not sure how useful
this analogy is.

