AppLovin is in the bond market on Wednesday with its debut US$3.55bn investment-grade offering as the mobile marketing company makes use of its improving credit profile to refinance its term loans.
The company is issuing a four-part bond, including US$1bn five-year, US$1bn seven-year, US$1bn 10-year and US$550m 30-year senior unsecured notes.
Leads Bank of America, JP Morgan and Morgan Stanley launched the transaction at US Treasuries plus 85bp, 105bp, 112.5bp and 137.5bp, respectively, coming in from IPTs of 115bp area, 135bp area, 145bp area and 175bp area.
Before the deal's launch, CreditSights analysts said a "relatively steep" gap of 30bp between the spreads for the 10 and 30-year notes was appropriate given AppLovin's potential vulnerability to disruption by other large technology companies.
The analysts nonetheless conceded that the company is showing strong growth, having recorded US$722m of Ebitda in the third quarter, a 72% jump from the comparable quarter in 2023.
AppLovin's increased profits have transformed investors' perceptions of the company since its troubled initial public offering in 2021. AppLovin's shares have jumped around 730% this year, according to LSEG data.
In particular, AppLovin's revenues have have been buoyed by improvements made to its artificial intelligence-based software platform, said analysts. The company helps mobile software and game developers figure out which advertisements to send to their users.
Rating agencies have responded positively to the company's strengthening finances. AppLovin was handed a first-time rating of BBB- by Fitch on November 1 and raised one notch to BBB- by S&P on November 7. Moody's delivered a single-notch increase to Ba1 today.
Unsecured shift
AppLovin is using the bond transaction to term out its secured debt load, which includes around US$3.5bn of drawn term loans due in 2028 and 2030.
As a result, the company will shift to a fully unsecured capital structure, according to an investor presentation.
Rating agencies typically require that a company has an unencumbered balance sheet to earn investment-grade status because having less secured debt affords the company more financial flexibility during times of stress.
Moody's said today that the company's upgrade to Ba1 reflected this impending transition. The rating agency added that the refinancing of the term loans should also lower AppLovin's interest costs and bolster its cashflows.