Salesforce Taps Bonds for Buybacks as Investors Demand More Yield

Salesforce, Inc. CRM has initiated a landmark $25 billion bond sale, earmarking the proceeds primarily for aggressive share buybacks. CRM is part of the Zacks Internet - Software industry and has a Zacks #3 (Hold). The offering is slated to close on March 13, pending standard closing conditions. The transaction marks one of the largest debt offerings in the company’s history and reflects a growing trend of corporations tapping the bond market to fund shareholder returns.

However, investor demand appeared weaker than expected, with buyers seeking higher yields than in the company’s previous debt offerings. The 10-year tranche was priced roughly 1.35 percentage points above U.S. Treasurys, a noticeably wider spread than what the firm achieved in 2021. The cautious reception reflects investor concerns about the company increasing leverage primarily to fund share buybacks, as well as broader uncertainty surrounding the long-term impact of artificial intelligence on enterprise software growth and spending.

However, the issuance highlights a maturing corporate playbook, i.e, leverage cheap debt for equity enhancement. It reflects reopening and depth of the investment-grade corporate bond market rather than exceptional enthusiasm for the specific deal. Companies like Salesforce may still be able to raise very large amounts of capital because institutional investors such as pension funds, insurers and asset managers continue to need high-quality yield.

Banking giants like JPMorgan Chase & Co.JPM and Bank of America Corporation BAC, via their respective securities arms, served as joint book-running managers, helping structure the offering, market the bonds to institutional investors and coordinate pricing for the multi-tranche deal. BAC carries a Rank #3, and JPM sports a #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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