Facebook parent Meta makes first-ever bond offering

© Reuters. FILE PHOTO: The logo of Meta Platforms is seen in Davos, Switzerland, May 22, 2022. Picture taken May 22, 2022. REUTERS/Arnd Wiegmann//File Photo

By Nivedita Balu and Shankar Ramakrishnan

(Reuters) -Facebook-parent Meta Platforms said on Thursday it would make its first-ever bond offering, at a time when the social media company is making massive investments to fund its virtual reality projects.

Meta did not disclose the size of the offering but said it would use the proceeds for capital expenditures, share repurchases, acquisitions or investments.

The company received an 'A1' rating from Moody's (NYSE:MCO) and an 'AA- rating' and a 'stable' outlook from S&P. Meta is selling four tranches of bonds with maturities ranging from five years to 40 years.

Among big technology companies, Meta is the only one that does not have any debt on its books. Tapping the market now would give it more financial room as it tries to fund some expensive overhauls, including a bet on augmented and virtual reality technology, investors who heard its presentation for the bond offering on Tuesday said.

It might also be a rare opportunity to do so relatively cheaply in the current market environment. Corporate bonds have rebounded in the past month after a rout earlier this year, as investors hoped the U.S. Federal Reserve's fight against inflation through rapid rate increases was starting to have some impact.

This week the U.S. investment grade primary bond markets have rebounded, with companies raising more than $38 billion, making it the eighth busiest week of the year, according to Informa Global Markets data.

Other tech giants such as Apple Inc (NASDAQ:AAPL) and Intel Corp (NASDAQ:INTC) also issued bonds earlier this week, raising $5.5 billion and $6 billion, respectively.

Bankers and investors said such issuance windows may be rare in coming months. One banker in charge of a bond syndicate desk at a U.S. bank said credit spreads could widen later this year, increasing funding costs.

Meta's bond issuance will come after the company issued a gloomy forecast and recorded its first-ever quarterly drop in revenue, with recession fears and competitive pressures weighing on its digital ads sales.

Its free-cash flow has been depleting as it charges ahead with its metaverse plans, which led the change in its name to Meta Platforms from Facebook (NASDAQ:META) last year.

In the second quarter ended June 30, Meta had $4.45 billion in free cash flow, compared with $8.51 billion a year ago and $8.53 billion in the prior quarter.

Chief Financial Officer Dave Wehner said on a post-earnings conference call that company had a "substantial amount" in its buyback program and expects to continue with buybacks as part of its capital allocation strategy.