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(Bloomberg) -- The anything AI frenzy has made its way into the high-grade bond market, helping a company shunned by Silicon Valley’s money just a decade ago to take on a $3.5 billion blue-chip borrowing that saw demand eight times that much.
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Until now, AppLovin Corp., which helps developers find users and make money from ads, had been relegated to borrowing heavily in speculative grade markets, including pricey leveraged loans. But after it reported third-quarter results last week that shattered estimates with its AI-powered advertising engine, its share price and market value soared. Higher credit ratings which allow it to tap the investment-grade market quickly followed.
The company on Wednesday sold the $3.5 billion of bonds in four parts, according to people familiar with the matter. The longest portion — a 30-year fixed note — is priced at 137.5 basis points over Treasuries, down from around 175 basis points earlier. The deal raked in at least $24 billion of orders, they said.
“This is a fast growing and highly profitable business - that is not usually the case for bond issuers in the media sector,’ says CreditSights senior credit analyst Hunter Martin. “The stock has ripped and the bonds seem well positioned for rating upgrades over time. The company actually generates a lot of free cash flow too.”
Reaching into the high-grade market means AppLovin’s borrowing costs will fall compared to when it was junk rated. Until now, it had to rely on collateralized loan obligations and other buyers of riskier loans to add cash to its balance sheet and finance acquisitions. It’s expected to save tens of millions of dollars on the $3.5 billion sale.
Once a junk-rated company achieves two investment-grade ratings it becomes a so-called rising star and its debt moves in the high-grade index, where the pool of investors is much larger and the company can get substantial lower pricing. It had its issuer level rating assigned a BBB- from S&P Global Ratings and Fitch Ratings on Wednesday.
The $3.5 billion offering came just hours before Nvidia Corp. announced its earnings. Markets had been bracing for big swings in tech stocks on what the world’s most valuable company had to say since it makes up such a big contribution to some indexes. Shares of AppLovin have risen more than 700% year to date.