Amazon Issues Another “Callable” 40-Year Bond: Buyers Beware. Have a Look at the Prior Deals | Wolf Street

Back on March 9, Amazon announced a massive bout of financial engineering to halt its sagging share price: It would split its stock 20-1 and incinerate $10 billion in cash to buy back its own shares.

By the eve of the announcement, Amazon’s shares [AMZN] had dropped 28% from the high of $3,773 in July 2021, to $2,720 on March 8, amid endless headlines that its stock was in a “bear market.” Then on March 9, Amazon comes up with the stock split and the $10 billion cash incineration program, and WHOOSH go the shares, surging by 24% in three weeks to $3,386 by March 29, just 10% below its closing high in July. That was a very effective application of financial engineering.

Amazon has a history of issuing callable 40-year bonds, and then calling them when it’s good for Amazon and bad for the bondholder, namely when yields have dropped and cheaper funding is available, which would normally push up the price of the bond, but Amazon pays them off at face value.

The callable feature removes the upside of long-term bonds when yields fall, but leaves the holder with the downside when yields rise.

Amazon Issues Another “Callable” 40-Year Bond: Buyers Beware. Have a Look at the Prior Deals | Wolf Street