Why Alphabet and other big tech firms are raising money in euros

Google’s parent company Alphabet announced on Monday morning that it’s issuing about $6.7 billion worth of new debt. It’s a sign that big tech companies are still eager to raise even more money to finance the AI infrastructure buildout.

But in this case, the ‘why’ isn’t as interesting as the ‘where’ — Alphabet isn’t issuing these new bonds in the U.S. but in Europe. And it’s not alone: Facebook’s parent company Meta is reportedly thinking about a big euro debt sale later this week.

One big reason why companies are issuing debt in Europe is because they’ve already been issuing so many bonds stateside, according to Randy Vogel, head of fixed income at Wilmington Trust.

“We saw $25 billion from Microsoft last week,” Vogel said. “We’ve got another $10 billion from Oracle already this week. We’re likely to get a large deal from Meta this week.”

Vogel said that some investors are getting a little concerned about all this debt. Other investors have actual caps on how much debt they can buy from a single company.

“These companies have had to tap other sources of funding in other markets,” he said. “And the euro market is one of those markets.”

Plus, many tech companies make a lot of money in Europe.

And when a company pulls in a lot of euros, for instance, “it makes sense for a company like that to actually raise financing in that same region,” said John Bai, a finance professor at Northeastern University.

That’s because big international tech companies could pay off that debt in euros. They wouldn’t have to deal with the mess of converting currency into dollars and dealing with exchange rates which have been volatile.

“Issuing bonds in euros is sort of an easy way to reduce the volatility,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

Issuing debt in Europe can also be cheaper. Winnie Cisar, global head of strategy at CreditSights, said that in some cases, interest rates on corporate debt in Europe are more than 1.5% lower than in the U.S.

“And that is one of the things that a company is going to consider when they’re thinking about tapping other markets — what is the difference in my borrowing costs?” Cisar said.

She said that companies are especially sensitive to borrowing costs right now, given that interest rates have been rising more broadly. If they keep rising, Cisar said that investors are going to get more nervous about whether a company can handle it.

“That is going to start to impact how I think about this company’s fundamentals, and the repayment of that cash flow,” she said.

And if investors start worrying about getting paid back, they’ll demand even higher interest rates.