Amazon said Thursday it has secured US$1.25 billion in loans by selling bonds that investors can exchange for stock.
The figure is more than double the amount of debt Amazon had originally asked for: Earlier Thursday, the company said it would seek $500 million. It quickly bumped up the figure when investors offered almost $800 million more for Amazon bonds.
Amazon (AMZN) would not say how it plans to use the money. Judging by previous spending habits, the lion's share will likely go to advertising -- saturating the Internet and other media with the Amazon brand name.
In the last three months of 1998, Amazon spent nearly $50 million on marketing, at the same time reporting a loss in excess of $17.8 million. Amazon executives say they expect to continue reporting losses for the next several quarters -- or even years -- as the company spends money to build up its Net presence.
There's no question that $1.25 billion is a lot of spending money for a company that has yet to turn a profit. But Amazon's latest debt offering appeals to lenders because it offers a way to cash in if stock prices soar and to protect their investments if shares plummet.
For Net companies, Amazon's debt offering is unusual because it will provide convertible debentures -- bonds that can be exchanged for stock at a fixed share price. That means that Amazon lenders can opt to trade bonds for stock priced at $156.05 per share -- 27 percent more than the current share price. If lenders opt not to buy stock and to keep their bonds instead, Amazon has to pay them 4.75 percent a year in interest until 2009.
Amazon did not offer the convertible debts to the public, however, choosing instead a private placement open only to investment banks and insurance companies. Morgan Stanley Dean Witter was the lead bank involved in pitching the debt offering to lenders.
