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Updated Monday, November 26, 2012 at 08:31 PM

Rock-bottom rates send Amazon to bond market

By Amy Martinez
Seattle Times business reporter

Seattle-based Internet retailer Amazon.com plans to raise $3 billion to help pay for the purchase of its South Lake Union headquarters complex.

Amazon, in its first bond offering in more than a decade, is taking advantage of low borrowing costs to sell debt maturing in three, five and 10 years, according to a regulatory filing Monday.

Proceeds will be used for “general corporate purposes,” including a previously announced deal to buy its leased, 11-building headquarters for $1.16 billion.

“They’re just taking advantage of the ultralow interest rates right now to pad their cash position a little bit,” said analyst Dan Geiman of McAdams Wright Ragen in Seattle.

Amazon, which has no bonds outstanding, held $5.2 billion in cash and marketable securities at the end of September.

Moody’s Investors Service rated the bonds Baa1, three levels above speculative grade.

“Moody’s believes that online retail sales will continue to experience strong growth over the next several years,” senior credit officer Margaret Taylor wrote in a report.

“However, Moody’s expects online retailing will become more competitive as numerous traditional bricks and mortar retailers turn their focus to their online presence and capabilities.”

Moody’s raised some concern about Amazon’s heavy investments in new infrastructure, noting that for the 12 months ended Sept. 30, the company’s earnings before interest and taxes, or operating profit, was $531 million, its lowest since 2006.

The rating “factors in the expectation that EBIT margin will stabilize in the fourth quarter of 2012 and will begin to improve in 2013,” Taylor said.

Amazon last sold debt in 1999, raising $1.25 billion of 4.75 percent, 10-year convertible notes, according to Bloomberg News.

The company, which Barron’s famously labeled “Amazon.bomb” in 1999, turned its first annual profit in 2003.

Five years later, with the economy headed for a recession, it paid off its long-term debt early.

Last month, Amazon announced its $1.16 billion deal with Vulcan Real Estate to buy its South Lake Union headquarters. It said Monday it made a nonrefundableable deposit of $51 million and expects to finalize the deal in the fourth quarter.

Amazon also is buying three blocks nearby from Seattle’s Clise family for new office towers in a sale expected to close by Dec. 31.

At the same time, it’s expanding its distribution network to get closer to major population centers and is pushing into the hotly contested market for tablet computers with its Kindle Fire devices.

“Those are all areas that require investment,” said BGC Partners analyst Colin Gillis. “It’s timely to put cash on the balance sheet right now, given how historically low interest rates are.”

Material from Bloomberg News is included in this report. Amy Martinez: 206-464-2923 or amartinez@seattletimes.com


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