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by hn_throwaway_99
1140 days ago
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Your comment does nothing to aid my understanding of the situation. Yes, anyone can take out a loan to get money now that they don't have to pay off until the future. Nobody misunderstands that. And I also fully understand taking out loans to invest in productive capacity when you need that capital. But if you have a couple billion dollars sitting in the bank, presumably making less interest than you'd need to pay for a bond issuance, then it still doesn't explain why issuing the bond makes sense. |
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This is an arbitrage play based on the difference between investor sentiment and debt on the books.
The idea is that their market valuation will go down less than $1B if they issue a $1B bond.
Similar nonlinearities are true for other corporate holdings. Facebook has $40B cash on hand. If they had $0 on hand, That would hurt their valuation by a lot more than $40B because investors like to see some cash in the bank, and see it as a red flag. Similarly, Investors dont care much about a little debt, and facebook is an outlier in that it has very low levels of corporate debt.