Alphabet to sell rare 100-year bond to fund AI expansion, bookrunner memo shows

By Yoruk Bahceli, Aditya Soni, Zaheer Kachwala and Matt Tracy

Feb 10 (Reuters) - Alphabet GOOGL.O is set to price a rare 100-year bond, a memo from the lead manager showed, as artificial intelligence-driven spending sparks a surge in borrowing at U.S. tech giants.

The company is selling 5.5 billion pounds' ($7.53 billion) worth of sterling bonds in a five-part deal, according to the memo, which was seen by Reuters. The 100-year tranche aims to raise 1 billion pounds.

Alphabet's sale of the century bond is the tech industry's first since Motorola's MSI.N issuance, according to Piers Ronan, head of debt capital markets at Truist Securities, a bond sale that LSEG data shows dates back to 1997.

The Google parent also raised 3.055 billion Swiss francs through a five-part bond sale spanning maturities of three to 25 years, according to a memo from a separate bookrunner.

The bookrunners declined to be named as they are not authorized to speak publicly.

RARE CENTURY BOND SALE

The sale of a century bond is a rarity. Sales of such bonds grew during the period of ultra-low interest rates that followed the global financial crisis of 2008. But they died down after 2022 as central banks raised interest rates sharply in the aftermath of the COVID-19 pandemic.

"You have an extraordinary time period that we're living through now with the change in technology," said Jason Granet, chief investment officer at BNY.

"Today it comes with a 100-year debt issuance out of Google... That's representative and indicative of a lot of the capital spending, a lot of the investment that's going through in markets and technology."

Alphabet shares were down 1.8% on Tuesday afternoon.

The Google parent also sold bonds worth $20 billion in a seven-part offering on Monday that mature every few years, starting in 2029, and go all the way up to 2066.

Big Tech's pivot to the bond market, however, has raised investor concerns as payoffs have not kept pace with the huge AI spending from U.S. tech giants, while businesses adopting the technology have so far seen limited productivity gains.

Capital expenditure from Alphabet, Microsoft MSFT.O, Amazon.com AMZN.O and Meta Platforms META.O is expected to total at least $630 billion this year, with most of the spending focused on data centers and AI chips, according to Reuters calculations.

Some analysts said Big Tech's greater use of debt reflects a pivot from asset-light models toward long-term infrastructure.

"Century bonds are usually the preserve of governments or regulated utilities with very predictable cash flows, so this deal shows that, at least for now, investors are willing to take on very long-dated risk tied to AI investment," said Lale Akoner, global market analyst at eToro.

The century bond's inexpensive nature makes it an ideal option from an issuer's perspective, according to Truist's Ronan.

"From an investor's perspective, buying it is a great idea because its duration risk is not much higher than the 30-year," Ronan said, adding that only a handful of companies have taken out century bonds in the dollar market since the global financial crisis.

Demand for ultra-long-term bonds is there, especially from life insurers, pension funds and endowments, given a relative dearth of long-end corporate bond issuance, noted Nicholas Elfner, co-head of research at Breckinridge Capital Advisors.

Oracle ORCL.N had also disclosed a $25 billion note sale on February 2 in a securities filing.

The AI hyperscalers - a group that also includes Oracle - issued $121 billion in U.S. corporate bonds last year, according to a January report by BofA Securities.

($1 = 0.7308 pound)