Century Bonds, a Rare Corporate Play

Companies do not often issue bonds that last 100 years. These century bonds stand out because most corporate debt matures in a few years or decades at most. Lenders and borrowers alike prefer shorter timelines to match business cycles and reduce uncertainty. Alphabet Inc. (NASDAQ: GOOG, NASDAQ: GOOGL), Google’s parent, just changed that pattern with its recent move. 

Alphabet announced plans this week to sell a 100 year bond as part of a larger borrowing push. The bond matures in 2126 and carries a 6.125% yield. It formed one piece of a five part deal worth US$7.5 billion. Demand exceeded supply by almost ten times, with bids totaling US$13 billion for the US$1.4 billion century tranche alone.

Investors snapped it up fast. Pension funds and insurance companies showed strong interest. They see Alphabet as stable enough to thrive for generations. This sale followed a US$20 billion U.S. debt offering earlier in the week. All told, Alphabet raised close to US$32 billion in days.

Alphabet needs cash for big spends on artificial intelligence, cloud services, and data centers. The company plans to double AI investments to $185 billion this year. It holds $126 billion in cash and generates $73 billion in free cash flow annually. Even so, those sums fall short for such ambitious goals.

A century bond lets the company lock in funding at today’s rates. Interest costs stay fixed for 100 years. This shields Alphabet from future rate hikes. Investors get a reliable 6.125% return, higher than many government bonds but low for the risk of such a long term.

Market experts note Alphabet’s edge. A recent court ruling called it a monopoly in search but allowed its core model to continue. That stability appeals to long term lenders.

Corporate century bonds happen once in a blue moon. Governments and utilities issue them more often because their cash flows stay predictable over time. Tech firms rarely try it. The sector moves too fast for commitments that far out. 

Over the last decade, pure corporate examples stay scarce. No major tech or other firms matched this scale until now. Sovereigns like Austria sold 100 year bonds in 2017 and Argentina in 2020, but those carry higher risks and yields.

Look back further, and Motorola Solutions Inc. (NYSE: MSI) comes up. In 1997, it sold a 100 year bond. That marked the last tech sector attempt before Alphabet. Investors then bet on Motorola’s telecom dominance. Times have changed, but the logic echoes: faith in enduring leadership.

Other corporates exist in history books. In 1913, Procter & Gamble issued one that lasted until 2013. Railroads and steel firms tried in the 19th century. Modern markets favor shorter debt. Only giants with unmatched balance sheets attempt it now.

People commit money for 100 years because Alphabet offers safety few can match. Its $4 trillion market value and ad revenue machine provide ballast. The bond’s yield beats U.S. Treasuries of similar length by about 1%. That spread compensates for corporate risk without scaring buyers off.

Demand hit nine times the offer. This shows institutions plan for their own long horizons. They match liabilities like pensions to assets that pay steadily.

Alphabet’s move signals a shift. Tech firms are pouring billions into physical assets like servers and power grids for AI. Debt finances that buildout without diluting stock owners. Borrowing terms stretch longer as confidence grows.

Other big tech may follow. Oracle just raised $25 billion. If AI hype holds, century bonds could become less rare. For now, Alphabet leads with this bold play. 

Investors watch yields and spending returns closely. A 6.125% lock in looks smart if rates climb. Success hinges on AI paying off over decades.