Facebook is rumored to be looking to increase its credit line again, just six months after increasing it from $1.5 billion to $2.5 billion, according to inside sources who wish to remain anonymous.
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Facebook plans to increase its $2.5 billion credit line to help cover a major tax hit when employee stock awards vest shortly after it goes public. A Facebook spokesman has declined to comment on the actual amount by which Facebook is looking to increase its credit line, but the increase is expected to be substantial. The exact amount, which is based on Facebook’s stock price, is likely to total in the billions of dollars.
Facebook’s taking advantage of its strong position ahead of its initial public offering by seeking more financing comes as no surprise, but helping employees cover tax on restricted tax units, RSUs, is an unusual and very expensive obligation for an employer, and doing so could become more costly if Facebook shares soar after the IPO. According its IPO filing, Facebook may sell equity securities, tap into its credit facility, use cash, or any combination of these options in order to meet tax obligations.
In February 2011, Facebook arranged a $1.5 billion credit agreement with leading underwriters of the company’s IPO, including Morgan Stanley (NYSE:MS), JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Bank of America’s (NYSE:BAC) Merrill Lynch, and Barclay’s Capital (NYSE:BCS). The best opportunity for Facebook to arrange credit facilities is before its IPO. Basically, Facebook is trying to get its hands on back-up cash while it still can as a part of a corporate financial strategy.
Other tech companies have arranged similar credit facilities before going public. Last year, Zynga (NASDAQ:ZNGA), the social games giant, arranged a $1 billion credit facility with underwriters of its IPO. The months leading up to an IPO are the most advantageous for companies trying to negotiate higher credit lines with banks that want a role in equity offerings.
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