Twitter seeks up to $1.5 Billion in convertible debt offering

Twitter Inc. is tapping debt markets for the first time, with plans to raise as much as $1.5 billion to invest in acquisitions and expansion.

The San Francisco-based microblogging company is selling the convertible bonds in two $650 million pieces, one maturing in five years and one coming due in seven years, according to a regulatory filing yesterday. The offering size may rise to $1.5 billion if the banks involved exercise an overallotment option.

Twitter, which isn't projected to be profitable this year, has been investing to build up its advertising business and add engineers who can help tweak its product to appeal to a broader audience. Executives see an opportunity in the debt market to raise more cash cheaply with little immediate dilution of their shareholders' ownership, according to a person familiar with the matter. The company was inspired by technology leaders, including Google Inc. and Netflix Inc., successfully offering debt while borrowing remains inexpensive, the person said.

Natalie Miyake, a spokeswoman for Twitter, declined to comment.

The decision comes two months after Anthony Noto, a former Goldman Sachs Group Inc. banker who helped with Twitter's Nov. 6 initial public offering, replaced Mike Gupta as the company's chief financial officer. Goldman Sachs and Morgan Stanley are leading the company's debt offering, according to the person.

"This is Noto's first real impact on the company," said Robert Peck, an analyst at SunTrust Robinson Humphrey Inc. "He's smart, he's financially savvy, and understands that whenever the markets give you an opportunity to raise capital that cheaply, you've got to either stuff your coffers for a rainy day or make an acquisition."

Twitter's Acquisitions

Twitter raised $1.82 billion in its IPO. The company has made several small acquisitions, including the purchase of social-data provider Gnip Inc. for $134.1 million in May. Twitter also recently agreed to buy CardSpring Inc., a service that lets users redeem deals and discounts through merchants' tweets, for undisclosed terms.

In the short term, convertible debt offerings tend to send a company's share price down as buyers hedge their purchases by taking short positions in the stock. Twitter's shares, which have more than doubled since the IPO, slipped 1.5 percent in extended trading yesterday after the debt offering was announced.

The company has a revolving credit line of $1 billion, which it hadn't tapped as of June 30.

Borrowing Costs

Companies are selling record amounts of debt, seeking to lock in cheap borrowing costs amid a sixth year of near-zero interest rates from the Federal Reserve. U.S. corporate bond sales topped $1.07 trillion in the first eight months of the year, an all-time high, according to data compiled by Bloomberg.

U.S. technology companies have issued $57 billion in bonds so far this year. That compares with $63 billion in the same period last year.

Google, owner of the world's largest Internet search engine, sold bonds in February for the first time in three years to refinance $1 billion of maturing debt, while video-streaming service Netflix sold $400 million in senior notes the same month to help finance capital spending.