Twitter wants more cash. The company announced two $650 million debt offerings in a filing today, each with a potential $100 increase provided that the sales are oversubscribed. Assuming full tip, including the $100 million boosters, Twitter will raise up to $1.5 billion with the two offerings.
Half the debt will be due in 2019, and the other half in 2021.
The company famously raised $1.82 billion in its initial public offering. In its most recent quarterly report, Twitter stated that it had cash and equivalents of $2.1 billion, down approximately $100 million from the end of its sequentially preceding quarter.
The company has demonstrated appetite for large deals. It famously almost picked up SoundCloud.
Twitter also has a $1 billion credit facility open to it. A separate SEC filing released today changed the amount of aggregate indebtedness that Twitter may have in conjunction to that facility, raising the cap to $3 billion. That’s important as if Twitter had raised the $1.5 billion in debt, it would have been in breach of its agreement pursuant to the credit facility to not have aggregate debt greater than $1 billion.
Twitter, assuming no other debt, can now max out its line of credit, borrow the $1.5 billion, and not be in breach of the facility’s agreement.
Why might Twitter want to borrow the massive sum? To grant it more maneuverability to purchase other companies, I’d wager. Also, money is likely to become quite a lot more expensive in the short-term. With the government’s quantitative easing program quickly coming to an end, there is a general expectation that the Fed will start to raise benchmark rates, boosting interest rates across the spectrum, and thus making deals of this sort more expensive for borrowing entities.
So, if Twitter wants to lock down a bucket of cash, now is the time to do it.
Twitter is not profitable on a GAAP basis, due to its large share-based compensation expenses. The company does have positive adjusted EBITDA, a very non-GAAP metric, but one that can be useful to view the cash costs of running a company. Twitter, put simply, does not need new cash to operate. At all.
But if it wanted to start an acquisition binge, it could certainly want to pick up more cash to sweeten deals. Stock is great, but cash is greater.