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Author Topic: Amazon secures $8B loan, anticipating market headwinds  (Read 69 times)
Hydrogen (OP)
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January 04, 2023, 10:48:53 PM
 #1

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Amazon has secured an $8 billion loan in anticipation of market headwinds.

Provided by DBS Bank, Mizuho Bank and others, the loan — which will mature in 364 days (January 3, 2024), with an option to extend for another 364 days — will be used for “general corporate purposes,” Amazon said in a filing with the U.S. Securities and Exchange Commission. In a statement, an Amazon spokesperson told TechCrunch that the loan adds to the range of financing options the company has tapped in recent months to hedge against the “uncertain macroeconomic environment.”

“Like all companies we regularly evaluate our operating plan and make financing decisions — like entering into term loan agreements or issuing bonds — accordingly,” the spokesperson said via email. “Given the uncertain macroeconomic environment, over the last few months we have used different financing options to support capital expenditures, debt repayments, acquisitions and working capital needs.”

Amazon’s income dipped toward the end of 2022 as the economy took its toll. The tech giant spent billions doubling the size of its fulfillment network during the pandemic, a play that served it well initially but which proved to be short sighted.

Amazon was forced to shut down or delay plans for over a dozen facilities as e-commerce sales last year grew slower than expected. Another headwind — soaring energy prices — impacted Amazon’s business in a major way, with the company’s spending on shipping climbing 10% to $19.9 billion in Q3 2022.

To cut costs, Amazon plans to reduce its workforce in early 2023, reportedly by as much as 10,000 employees. The layoffs, which would be the largest in the company’s history, are said to be concentrated in Amazon’s human resources, Alexa and retail divisions.

In other penny-saving measures, Amazon has frozen hiring for corporate roles in its retail business, shut down its Amazon Care telehealth service, closed all but one of its U.S. call centers, and scaled back Amazon Scout, its long-running delivery robot project. Those moves haven’t been enough to prevent the company’s market cap from falling below $1 trillion for the first time since April 2020.

Amazon had about $35 billion in cash and cash equivalents and long-term debt of about $59 billion at the end of the third quarter ended September 30, Reuters reports. For the first nine months of 2022, Amazon paid $932 million in cash paid of interest on debt, up from $731 million for the same period a year earlier; the interest rate spread on the new $8 billion will start at 0.75% before increasing to 1.05% if Amazon decides to extend the loan’s maturity.


https://techcrunch.com/2023/01/03/amazon-secures-8b-loan-anticipating-market-headwinds/


....


Here is a thought.

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Amazon had about $35 billion in cash and cash equivalents and long-term debt of about $59 billion at the end of the third quarter ended September 30, Reuters reports. For the first nine months of 2022, Amazon paid $932 million in cash paid of interest on debt, up from $731 million for the same period a year earlier; the interest rate spread on the new $8 billion will start at 0.75% before increasing to 1.05% if Amazon decides to extend the loan’s maturity.

The interest rate on amazon's $8 billion dollar business loan is 0.75%. I think currently US inflation is officially around 7%. What happens when interest rates on loans are significantly lower than inflation? Some might say loans become more profitable under these circumstances.

Example. Let's say crypto bob takes out a loan for $100 in 2022 on a 12 month plan. By the time 2023 arrives the $100 he borrowed could have lost 7% of value, due to inflation. Which means he might only have to payback $93 plus interest. If he was lucky enough to pay 0.75% interest as amazon is, he could in theory payback less than he borrowed. This is a rough example so please do not nitpick it. The basic principles could still apply even if every part of it isn't perfect.


Is there a good format for deploying a stablecoin or altcoin that improves on loan advantages gained by inflation being high? Coupled with interest rates being lower than inflation?

The chart for fiat in times of high inflation, could be similar to the chart for BAT and tokens which lack HODL incentive. I think there could be an angle or opportunity for those circumstances. But I can't seem to think of it atm.

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January 05, 2023, 12:23:27 AM
 #2

The average business makes 20% returns a year. A small business in the entertainment or food service industry can make 150+% a year and a large company can still make 10-20% profit over the year. Under all of these circumstances, a loan is still very profitable.

High inflation (as I see it) reduces risk of taking the loan more greatly than it increases profit margins.

A lot of companies seem to target around 60%.debt to assets so it might be that amazon is taking this loan to try to do that (and why their interest is so low) or they could've had something specific they've piqued the banks interest in.
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January 05, 2023, 02:55:18 AM
 #3

I'm not sure whether it's wise to take out a loan even if the inflation rate is higher than the interest rate, but what I'm fairly certain of is that Amazon didn't take out that gigantic loan because they were looking to profit from it.  From parts of the article it sounds like they're in a bit of trouble, especially if sales are declining and they have to lay off all those workers.

Corporations generally don't like to have a lot of debt on their balance sheets unless they're really putting that borrowed money to good use.  That doesn't seem like the case with Amazon, and man do they have a lot of debt!  It's almost hard to fathom a company paying nearly $1 billion in interest payments in nine months alone.

The average business makes 20% returns a year.
Really?  That sounds way too high--historically the stock market has increased about 10% on average per year (if I'm not mistaken), so if companies were averaging 20% profit annually you'd think we'd always be in a bull market.

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January 05, 2023, 04:19:18 AM
 #4

i don't really know about the relationship between debt and inflation,, but from this case we can see that even though the interest provided by dbs bank, mizuho bank and others is below the federal reserve interest rates but they still carry out this loan agreement .. it indicates that banks want their financial flows to keep going and not stand still, and amazon which is a global company is a potential partner and their loans are very good for the books of these banks .. so this is a mutually beneficial agreement for both parties
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January 05, 2023, 03:38:56 PM
 #5

Is there a good format for deploying a stablecoin or altcoin that improves on loan advantages gained by inflation being high? Coupled with interest rates being lower than inflation?

Do you still think that every problem can be solved with a new coin, token or stablecoin? You've been talking about it for years, and I've never seen any of your ideas turn out to be anything other than empty talk. What about the idea that firewood is the new bitcoin - have you looked at the temperatures in Europe this winter?

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January 06, 2023, 03:19:20 AM
 #6

I'm not sure whether it's wise to take out a loan even if the inflation rate is higher than the interest rate, but what I'm fairly certain of is that Amazon didn't take out that gigantic loan because they were looking to profit from it.  From parts of the article it sounds like they're in a bit of trouble, especially if sales are declining and they have to lay off all those workers.

Yes I have same thought too. I think is not a good choice to take a loan when the inflation rate still high. I know that interest is decline over past few month but in my opinion is still high and the news about recession is everywhere @Hydrogen make one too https://bitcointalk.org/index.php?topic=5433048

when the buying power is low and the inflation still high it would be bad for small or big company

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