Walmart Borrows $16 Billion in Second-Largest Bond Sale of Year

(Bloomberg) -- Walmart Inc. sold $16 billion of bonds to help finance its investment in India's biggest online seller, in the second-largest U.S. corporate debt sale of the year.

The retailer offered fixed- and floating-rate notes in nine parts. The longest bond, a 30-year security, yields 1.05 percentage points above Treasuries, less than the initial 1.2 percentage points that was being pitched earlier in the day, according to a person with knowledge of the matter, who asked not to be identified because the details are private. The deal edged out an offering Bayer AG completed two days ago.

Walmart, the world's largest retailer, said last month it will acquire a 77 percent stake in Flipkart Group for $16 billion, leaving the remainder to Flipkart co-founder Binny Bansal and other shareholders. The deal -- Walmart's largest ever -- gives it greater access to India's fast-growing e-commerce market as the company tries to challenge Amazon.com Inc. Walmart acquired online seller Jet.com Inc. for about $3.3 billion in 2016.

Just a week before Walmart announced its plans for a stake in Flipkart, it agreed to sell a controlling stake of its of its British business, Asda, to a competitor for $10 billion. The sale reflects Chief Executive Officer Doug McMillon's strategy to focus on high-potential markets, such as China and India.

The mega bond issue follows a $15 billion offering from Bayer, which now becomes the year's third-largest bond sale. Both trail CVS Health Corp., which sold $40 billion of bonds in March to help fund its acquisition of Aetna Inc.

All three sales are just the latest examples of what's become a growing trend in the investment-grade bond market: companies loading up on debt to fund an acquisition, and willing to sacrifice their credit ratings in the process. That's shifted the majority of investment-grade debt to land in the BBB space, according to Bloomberg Barclays index data, which could spark a wave of fallen angels into the high-yield universe when the credit cycle turns.

Potential Downgrade

The Flipkart acquisition has drawn heavy skepticism from Wall Street, prompting several equity analysts to either cut their price target for Walmart's stock or place it under review. S&P Global Ratings said there's about a 33 percent chance it may downgrade Walmart's AA rating in the next two years due to the company's “aggressive global deal-making” as it tries to compete with Amazon.

Leverage will rise to about 2 times Ebitda -- earnings before interest, tax, depreciation and amortization -- and debt will jump by more than $10 billion. Before the Flipkart deal was announced, S&P had anticipated the company would pare its debt by $5 billion. Walmart also plans to continue its current share buyback program, indicating a “potentially less conservative financial policy” going forward, S&P analyst Diya Iyer said in a May 9 report.

Moody's Investors Service, which rates both Walmart and its new bonds Aa2, an equivalent level to S&P's, has been more positive, applauding Walmart's “historically flexible” financial policy.

“We continue with our credit positive view that Flipkart represents a significant long-term opportunity for Walmart as it recalibrates its international strategy to focus on growth markets,” Moody's analyst Charlie O'Shea said in a statement Wednesday.

Barclays Plc, Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., HSBC Holdings Plc and Wells Fargo & Co. managed the bond sale, according to the filing.

--With assistance from Allan Lopez and Matthew Boyle.

To contact the reporter on this story: Molly Smith in New York at msmith604@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Shannon D. Harrington, Dan Wilchins

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