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Investors demanded significant concessions in Salesforce’s $25bn bond deal on Wednesday, highlighting rising worries on Wall Street about how AI technology could disrupt software companies.
Salesforce launched the debt deal on Wednesday to fund a large share buyback following a 27 per cent drop in its stock this year.
The 30-year bonds the group offered, which were rated at A+ by S&P, were sold at a yield that was 1.7 percentage points above US Treasuries, according to people familiar with the matter. That is much higher than the so-called spread on a Bloomberg index of single-A-rated bonds of 0.92 percentage points.
The significant premium in borrowing costs comes as Salesforce, which is known for its customer management products, has been under sustained pressure as AI companies such as Anthropic build increasingly capable tools that will compete directly with the group’s software offerings.
In a sign of how investor angst has risen recently, Salesforce sold debt with a spread of just 0.8 percentage points in 2021 to fund its acquisition of Slack Technologies, the people said.
“It might look more like a triple-B credit over time,” said Adam Abbas, head of fixed income at Harris Oakmark, adding that Salesforce is expected to increase its borrowing in the near future.
In a series of investor calls on Tuesday, Salesforce executives emphasised that the company continued to thrive on long-term corporate contracts that generate strong recurring revenue and that it expected its own AI tools to drive growth in the next few years, according to people familiar with the conversations.
However, Salesforce management also hinted that it would not rule out taking out more debt to fund future acquisitions, the people said.
“We found the roadshow commentary to be aggressive,” said Jordan Chalfin, head of technology of CreditSights, in a research note published on Wednesday morning. “The company would be willing to drop to BBB, at least temporarily, if the right M&A target came along.”
Salesforce did not immediately respond to a request for comment.
Salesforce has been pitching its “agentic” AI tool, Agentforce, which can take actions on behalf of clients, including handling customer service. But the group is facing fierce competition in the market with start-ups such as Sierra, which was founded by former Salesforce co-CEO Bret Taylor, starting to make inroads in the enterprise software market.
Bank of America, Barclays, Citigroup, JPMorgan and Wells Fargo are the bookrunners on the bond sale.
Additional reporting by Rafe Rosner-Uddin in San Francisco