Alphabet Looks to Raise About $15 Billion From US Bond Sale

0:00Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, head of government and economics at Bloomberg. Every week, I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy.

0:38Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at Vanguard.com slash audio. That's Vanguard.com slash audio.

1:14All investing is subject to risk Vanguard Marketing Corporation Distributor. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Another big deal in the tech space, and I mean not in the M &A space, but in the bond issuance space, Alphabet looks to raise about$15 billion from a U.S. bond sale. Just the latest big tech company hitting the bond market here. And why not?

1:57The market seems to be wide open. Let's check in with a professional here, Rob Schiffman, he covers the bond markets for the big TMT companies here. Rob, you've told us in the past that these tech companies, they raise money because they can, not necessarily because they need it. But now they kind of need it a little bit. Has that changed the narrative at all? Because they try to fund all this AI build out. Yeah, I'd say they don't really need it. OK, but there's plenty of access at reasonably low cost, obviously all along the curve with the 100-year deal on the market, and in multiple currencies.

2:29So I think since demand for AI is so insatiable, I actually think you can still say that demand for these AI tech companies' bonds are insatiable as well. Okay, you mentioned a 100-year bond. I thought 40-year bond for Oracle was kind of bananas, but a 100-year bond, I mean, we don't even know if this company is going to be around. And granted, they're going to refinance a lot of things. So this isn't like in 100 years, people will necessarily be collecting on this. But how does that make sense? Yeah, well, listen, based on what might happen with AI, we don't know if any company is going to be around in 30, 40, or 100 years.

3:02So the world changes sort of quickly. But when you actually think about the duration of a 100-year bond, it's pretty much the same as a 40-year bond or a 30-year bond. So it sounds sort of astronomical. But really, the risk to the credit is pretty much the same. So I wouldn't really think too much about that. The one thing to think about is, again, we continue to talk about how much excess capacity these companies have, how much borrowing capacity they have. This morning when S &P affirmed Alphabet's AA plus rating, they said they have$180 billion of additional debt capacity before they get to S &P's rating trigger.

3:40So it's not just that they have a lot of capacity. That's how much capacity they have at AA plus. What does that mean? What if they wanted to borrow a trillion dollars? Could they? So obviously that's not realistic, but there's just a lot of room here. And as these numbers get bigger and bigger, we also have to remember there's a flip side to this. Cash flow is also getting a lot bigger as well. So in the near term, though, leverage is climbing a little bit. Again, there's a tremendous amount of capacity from both raters and from bond markets. I think all the skepticism here is really on the equity side.

4:08It's all about multiples, what the right trading price for the equity is. What bondholders are telling you is we're trading at the right prices. We're actually near historical tights for the corporate bond market. And, you know, these bonds don't offer tons and tons of yield. The bondholders are screaming, we are not worried. They're not worried. And that's why these bonds don't offer tons and tons of yield. Isn't there a risk of concentration risk where investors, I mean, there's a lot of debt coming to market, a lot of it coming from big tech. And everyone wants this because these companies are good for it.

4:39But won't they be too overloaded on big tech debt? Yeah, you know, we've heard this historically for the last few decades. You know, luckily, I've been around a long time and I've seen this happen before where, you know, the market, people come back and say, we're full. We can't have another bond. We have too much exposure to either one individual name or to this sector. And you know what changes that? Spreads. You offer a bigger concession and people will come in. There's a price for everything. So if Alphabet a year ago or two years ago or five years ago might have printed a bond at Treasuries plus, you know, 30-year bond at Treasuries plus 50 or 60.

5:13So now they're going to print a bond at, you know, let's say 100 over. So there's just that right clearing level. We actually saw that with Oracle. We talked last week how that's sort of the poster child for everything that people are worried about. And then they got$130 billion of demand because they boosted concessions higher. So I think I don't think that's really an issue. They're not just issuing in dollars, are they? No, they're they're they're doing Swiss francs as well as pounds. I also think there's other currencies they can go to. I mean, I've actually had a lot of people ask me this morning, why aren't they doing euros?

5:43There's a huge bid in the euro market for tech paper because all of these companies are effectively U.S. denominated names issuing U.S. dollar paper. So I think there's another market in euros. There's also, I think, could be a huge yen a bit as well. Historically, we've seen, particularly in telecom and media, attracting a lot of Asian capital. So I wouldn't be surprised if that might be the next market. The reality is some of these names, they don't really need to worry about at this point. There's so much dollar demand. But it's interesting to see that I think they can price their bonds at tighter levels because there's demand around the globe in multiple currencies.

6:21Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders.

6:58These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, Go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation Distributor.

7:35as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts.

8:16You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. We've got a lot of deal making news today. It is Monday, after all, so M &A is to be expected. But Eli Lilly has been especially busy today because it made an investment over the weekend. It also has made a purchase, an outright purchase as well. And this is, of course, as the company is holding on pretty well with its obesity drugs, certainly in comparison, it feels like, to Novo Nordisk.

8:54Sam Fazelli is our Director of Research for Global Industries and Senior Pharmaceuticals Analysts. And he joins us now to talk a little bit more about what's happening with Eli Lilly. So, Sam, our BI drug boss, thanks for joining us, as always, on this Monday. Eli Lilly buying a company called Orna Therapeutics for up to$2.4 billion in cash, shortly after it has announced it's paying$350 million to Innovent Biologics from China. Talk about what the common thread is between both of these acquisitions or these transactions. Yeah, sure, Scarlett. The common thread is I've got cash that is producing at a very rapid rate, and I need to make sure that I've got a pipeline the day that people are going to start worrying about my patents expiring.

9:43It's a long way off for these huge drugs. So the more assets that these guys have with their massive cash flow to invest in for R &D, the higher the probability that they'll be coming to that point where people start going just like they're doing with Merck. oh gosh your 35 billion dollar drugs about to come off patent that's in merck's uh scenario what are you going to be replacing it with and of course merck has been doing some moves there lily is doing these things these are two very separate deals they've done about seven deals with this chinese company that you're referring to innovant um and the deal they bought and i love the name of this company orna it's circular rna and i think um that's the you know i couldn't have imagine the better name for this company.

10:28It is another one of those ways of trying to use RNA to impact biology in this person directly, like a vaccine, like cancer or whatever way you want to go. It's a very different approach, but it's a very interesting approach. Boy, the gloves are coming off, Sam, in this obesity market here. Novo Nordisk suing hims and hers for making knockoffs of its obesity products. This seems really cut and dry to me. view this knockoff market here for some of these drugs? Well, you shouldn't have a knockoff market for these drugs. There's rules in the patent world. You invent something, you patent it. You're supposed to have a while to make some profits of it before generic companies come.

11:14There's a very well set process for this. And of course, the companies try and extend their patents a bit and stay on the market for a bit longer. But at the end of the day, generics come. And that's how the model works. The drugs get cheaper. Good drugs get cheaper. Everybody gets access. So here, having someone to go and say, OK, I'll go and buy and source the active agent from somewhere and put it in a syringe and sell it to people, that shouldn't be allowed. During a period of lack of supply, especially if you have a very difficult to manufacture drug, which these have been, that's fine, perhaps.

11:47And the FDA allows that. But that ended nine months ago. Why hasn't this happened earlier? I don't know. And I tell you, I love the take the gloves off analogy. Are these guys heavyweights? Or are they lightweights or featherweights? Let's see who's who's the heavyweight in this fight. Hims and hers. That stock is down 25 percent today, year to date down about 50 percent, 52 week low. So it's definitely feeling it. Definitely feeling it. Sam, Novo and Hims actually had a partnership, I believe last year, but they scrapped that and their relationship has worsened. What did that partnership look like?

12:24And perhaps did that give HIMSS some room to feel like it could move forward on, you know, coming up with these knockoff versions? Yeah, wouldn't that be the easiest thing to do is just to go to, no, I don't think, actually, just to answer your question directly there, I don't think so. I don't think they could have back-engineered the Novo Nordisk product because the latest thing that finally brought this to this hiatus that we've come to, to this pinnacle of fighting that we've come to, was the oral drug. But they couldn't have had access to the oral drug. It was only just got launched. So reverse engineering something isn't something you do over three or four months.

13:06So I doubt that was the case. I think they could have had a good relationship. Novo could have carried on, used them as a platform. But then Novo created its own platform, NovoCare, just like Lilly Direct, etc. So I don't know how much that lasted, how much revenue Novo got out of it, but it could not be very much. Sam, so having a drug here for obesity, just a goldmine. You can just think about how big this marketplace could be. How about some type of medicine for, I don't know, baldness? that a couple of my good senior BI people in London may be interested in. Who needs a drug for boldness? We are higher up on the evolutionary tree, my friend.

13:45I know, but isn't something like that in your thing as well? There is. There's, in fact, a company that's just IPO'd that's got some ideas there. I think there are drugs already, alopecia drugs out there, but those are more for serious cases, not for someone like me that nobody cares anymore. I think that everyone will be shocked if I turned up with a bit of hair. So there are companies out there. This is something that folks who, for whatever reason, lose hair really early in their youth. I had a friend of mine who at the age of 18 was going bald. So, of course, that's very tough for somebody at that age.

14:20And even, you know, 40-year-olds who don't want to end up losing that beautiful hair they have. It was too late for me. But those guys, yes, there is a meaningful market there. Not going to be as big as obesity, though, I don't think. Stay with us. More from Bloomberg Intelligence coming up after this.

15:01In the market, whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations. Sometimes it's behaviorists like Dick Thaler or Bob Schiller. Sometimes it's fund managers like Peter Lynch, Bill Miller, Ray Dalio. Sometimes it's authors, Michael Lewis, author of The Big Short and Moneyball. Regardless of the conversation, these are the folks that move markets each week. That's the Masters in Business podcast with me, Barry Ritholtz. Listen on Apple, Spotify, or wherever you get your podcasts.

15:58Today in the energy space, Transocean. You remember them from the BP thing. Transocean to buy Volaris in a stock deal valued at$5.8 billion. Scott Levine joins us here. He covers the energy space for Bloomberg Intelligence. Scott, who's Transocean? Who's Volaris? And why are they getting together here? Yeah, so two of the bigger names in offshore drilling. Transocean has the largest backlog. Volaris has the largest fleet. Valaris' name may not be that familiar to a lot of folks here. It was actually a combination of two companies called Ensco and Rowan a few years ago. But they are two of the biggest offshore drillers.

16:37And I think that this deal really has both offensive and defensive motivations. Offshore drilling is in a little bit of a recovery mode, really kind of has been. Most of the drillers went bankrupt, actually, during the 2020-21 downturn. TransOcean was really one of the only companies that did not go bankrupt. Valaris did. And so TransOcean has kind of been saddled with all this debt as a result of not having their balance sheet wiped during bankruptcy. And so that's been a limiting factor on their growth for quite some time. And this deal, which is an all stock deal, will accelerate their leveraging process and remove some of that burden from them and better enable them to capitalize on an upturn in offshore drilling.

17:29And the second thing that's important to note here is that it brings a jackup fleet. So a jackup fleet, jackups are basically shallow water rigs, okay, as opposed to the deep water drill ships or floaters. And Transocean had exclusively been a floater fleet. Jackups are more to the seabed. The seabed's lower in shallow water. And Valeris is one of the biggest players there. And so this gives Transocean exposure to the jackup or shallow water market, which has really undergone an interesting phase in that it was a bit of a downturn the last couple of years. The biggest jackup driller is Saudi Aramco.

18:13And a couple of years ago, Saudi Aramco made significant cuts to their drilling program. They essentially, Saudi Arabia, abandoned plans to increase their oil production capacity to 13 million barrels a day. And what we've seen since then is a lot of jack-up rigs being laid off effectively in 2024 and 2025. Right. Indications suggest those rigs will return this year. So that market is bottomed and maybe on the cusp of an upswing. So this deal will give Transocean the ability to participate in that recovery. So in terms of why now, when it comes to the timing of this deal, the CEO of Transocean cited a multi-year drilling up cycle.

18:57Where are we in that cycle? Are we, you know, first inning? Are we third inning? It's kind of been an interesting up cycle. So we saw an inflection in 22 and 23. And 24 and 25, we've seen kind of a plateau to a slight pullback. Now, I do believe we're in a recovery and have been, and this has kind of been more of a mid-cycle pause associated, rather than a downturn in offshore drilling. So I do think the recovery is intact, but I think the cadence has certainly slowed and, in fact, deteriorated. And offshore drillers like energy service companies have been off to the races this year. I think the oil price has held in better than expected.

19:44Uh, some of that is due to some of the, uh, uh, tensions in, uh, the Middle East, Iran, et cetera, Venezuela as well. Uh, so, uh, the punchline really is that we're still in, I think, a mid-cycle pause until maybe the second half of this year. And in terms of what inning we're in, I think we're probably like third, fourth, earn it third, fourth inning, but it's been in kind of an unconventional recovery. Will the regulators allow these two companies to get together? Yeah, I think so. And it's a good question. These are the two of the largest players that are out there. And RIG CEO expressed extreme confidence that that will be the case.

20:22It's a competitive market. There's a lot of fragmentation, smaller players in the market. And it's generally the quality of certain assets that determine which guys win which contracts. A lot of it depends on which RIGs are capable of drilling for which projects. And so, no, I do think that this should get a relatively quick approval. Certainly, they're talking second half of this year. That's a much shorter timeline than the last major oil field services merger, which was Schlumberger Champion X. That took over a year, two year and a half to approve and required significant divestitures. But offshore drilling is a different market.

21:08Stay with us. More from Bloomberg Intelligence coming up after this.

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22:20You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. The Trump administration is considering a potential antitrust probe into U.S. homebuilders. Presumably, this kind of goes to the issue of affordability or lack thereof in the housing market. The question is, how impactful is it for this industry and for the companies, the homebuilders in this industry? To get some answers there, we turn to Drew Redding, who covers all the homebuilders for Bloomberg Intelligence.

22:56He also is a sconce down in Princeton, New Jersey at our campus down there. Drew, talk to us about this potential lawsuit by the Trump administration. How serious is the industry taking this? Right, so according to the report, there's actually no indication that any formal investigation has started. I guess what's at play here is that it was hinted at that one of the industry trade groups, leading builders of America, builders within that, including some of the large public builders that were highlighted, like Adir Horton and Lenar, we're sharing information that could be used to restrict home prices or inventory.

23:35You know, we've seen this tactic from the administration in the past where they'll leak some information to the public, kind of as to put out a feeler for, you know, what the industry's response will be. You know, but to this point, it doesn't appear that there's actually any concrete evidence of wrongdoing. It's interesting because the home builders have been in the crosshairs of the administration since the end of last year. There's been rhetoric saying that if the builders don't put their lots into production and start building houses, that the GSEs can pull liquidity. There's been dialogue suggesting that the public home builders shouldn't be buying back their stocks.

24:14They should be putting that into production. And that's actually become a big part of their business model. And there's also been talk about them not being able to utilize their forward purchase commitments, which is how they've gotten buyers monthly payments so low by buying down mortgage rates. So, you know, I think this certainly heightens the rhetoric. And I think it's something that's going to continue as we go through the year. Okay. So even as they've been, as there's been tension between the White House and the home building industry, there's also some talk of them working together, right?

24:44There's all this discussion about Trump homes, builders working on a plan for a massive program to develop these so-called Trump homes that would at least address the supply shortage. Yeah, that's a great point, Scarlett. And it's interesting because, you know, the tone of this relationship between policymakers and the home builders seems to change by the day. I just mentioned that they've been in the administration's crosshairs. But at the same time, we've heard from the administration and from the large public builders during their earnings calls that they have been working collaboratively to find a solution to housing affordability problem whether that's through you know demand side stimulus or finding ways to bring new supply to market.