Salesforce Experiences Lukewarm Interest in Bond Offering to Support Stock Repurchase

Salesforce Faces Tepid Demand for $25 Billion Bond Offering

Photographer: David Paul Morris/Bloomberg

Salesforce Inc. encountered only moderate interest from investors for its $25 billion bond issuance, as skepticism grew over the company’s decision to use debt to fund a major share repurchase and broader concerns lingered about how artificial intelligence is impacting software firms.

The company is issuing bonds in eight tranches, with maturities spanning from two to forty years, according to sources familiar with the transaction.

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At its highest point, Salesforce attracted $50 billion in orders, according to insiders. This is significantly less than Amazon.com Inc., which recently drew $126 billion in demand for a $37 billion bond sale. On average this year, high-grade corporate bonds have seen orders about 4.1 times the amount offered, based on Bloomberg data.

For the longest-dated bonds, the yield premium narrowed by only 0.1 percentage point to 1.85 percentage points above Treasuries, which is below the 0.3 percentage point average tightening seen in similar deals so far this year.

This disparity highlights Wall Street’s growing unease about how established software providers like Salesforce are navigating the rise of AI, while tech giants such as Amazon are perceived as benefiting from their heavy investments in artificial intelligence infrastructure.

“Short interest in the software sector is near record highs globally,” said George Catrambone, head of fixed income at DWS Americas. “It’s not that the entire sector or new issues are being dismissed outright, but spreads are likely to widen somewhat.”

Salesforce is also leveraging AI to drive growth, but its stock has fallen over 25% this year. As a result, investors have sought higher yields over Treasuries to purchase its outstanding bonds.

Despite these challenges, analysts expect Salesforce’s revenue and earnings to climb this year. The company recently unveiled a $50 billion share buyback and a 5.8% dividend increase, along with a sales outlook that surpassed expectations.

Moody’s Ratings described the debt-financed buyback as a significant change in the company’s financial strategy, indicating a greater willingness to take on debt. Consequently, Moody’s downgraded Salesforce’s rating to A2, while S&P Global Ratings shifted its outlook to negative.

Additional Details

In its last major US bond sale in 2021, Salesforce raised $8 billion to help fund its acquisition of Slack, according to Bloomberg data.

Representatives from Salesforce, Bank of America, and Citigroup—among the lead managers—did not immediately respond to requests for comment. Wells Fargo, JPMorgan Chase, and Barclays, who are also involved in the deal, declined to comment.

Reporting assistance by Caleb Mutua and Michael Gambale.

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