A debt offering is when a company offers a note or a bond to investors to raise capital. This is a financing option undertaken by a company in order to fund an expensive purchase that it would otherwise be unable to afford.
To understand what debt offering is, it is important to know what a bond is. Simply put, it is a guarantee that upon taking money from an investor, you will pay them back the amount that you have borrowed from them along with interest.
All debt offerings have a “maturity “date, i.e., the date when the investor who loaned a company money is due all what they loaned as well as their interest. For example, if Meta issues a bond over a 10-year period with a 10% interest rate to an investor, it means that over the course of the 10 years Meta will make an annual interest payment of 10% for the next 10 years. After 10 years, the bond ceases to exist, i.e., it has “matured”
It differs from offering equity in the fact that by offering bonds from your company you avoid dilution of ownership and reducing the income of your current shareholders. Most recently, tech giant Meta Platforms, which owns Facebook, Instagram, Oculus and other IPs on August 4, 2022, sought to raise $10 billion via a debt offering. The reason Meta has done so is two-fold, the bond markets are seeing a resurgence after the US Federal Reserve hiked interest rates and because the company is looking for funds for its virtual reality, metaverse and Reels-focused initiatives.
Also Read: Why is Meta making a bond offering now?
Meta recently managed to raise the $10 billion through a bond deal that it made in four parts. The longest portion was a 40-year-long offering which will yield 1.65 percentage points above Treasuries, meaning that investors which took part in this deal will make bank.
Also Read: Meta to raise $10 billion in bond offering
Meta has felt threatened by Chinese app TikTok’s steep rise. In recent months Meta has shifted focus to short-form content in the form of Instagram’s Reels and is looking to use machine learning and artificial intelligence to create algorithms that direct users to content that it can monetize.