Via Financial Times

Twitter is planning its first foray into the junk bond market, hoping to raise $600m as the social media platform tries to shrug off lacklustre third-quarter earnings.

The company held calls with investors on Tuesday, according to people familiar with the conversations, and is expected to sell the debt on Thursday, as it seeks to test its access to capital markets.

The bond sale comes shortly after Twitter reported revenue growth of 9 per cent year on year for the third quarter, the slowest rate of growth in 18 months and falling short of Wall Street’s expectations. After adjusting for a large tax benefit in the same quarter a year ago, the company’s net income plunged more than 60 per cent, to $36.5m.

Despite this backdrop, investors expect Twitter’s debut bond sale to be met with strong demand. In contrast to other Silicon Valley technology titans such as Netflix or Tesla, which entered the bond market when they were torching cash, Twitter is cash flow positive. Its balance sheet lists cash and short-term investments of $5.8bn, well in excess of its debt — made up of three convertible bonds — of about $2.2bn.

“From a debt holder’s perspective, it’s a lay-up,” said John McClain, a portfolio manager at Diamond Hill Capital Management, alluding to an easy shot in basketball.

The rating agencies Moody’s and S&P Global referred to Twitter’s strong cash position in rating the company’s debt double-B and double-B plus, respectively. Both fall just below the highest tiers of ratings — so-called investment-grade territory — which is normally granted to companies with long histories of borrowing.

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Double-A rated debt has rocketed to near 14 per cent returns this year, boosted by strong demand from investors fearful of stretching too far down the ratings ladder in search for yield.

Twitter’s bond was initially marketed with an initial coupon of 4.5 per cent, according to people familiar with the deal, but strong demand has already started to bring expectations for borrowing costs lower, to between 4 per cent and 4.25 per cent.

“The market is strong right now, but it’s also quiet and investors clearly have cash to put to work,” said Ken Monaghan, co-director of high yield at Amundi Pioneer. “I am sure people are looking at this as one of their last new issue opportunities of the year.”

The October results, which Twitter partly blamed on newly discovered “bugs” in its system, knocked the company’s shares by more than 20 per cent to $30. The stock has not recovered since.

Meanwhile, Twitter may face an investigation from authorities in the US after saying the company said it had “inadvertently” used personal information to target advertising without user consent.

Jack Dorsey, Twitter’s chief executive, also raised eyebrows last week when he said that he planned to move to Africa for as much as six months next year.