Facebook is bulking up its credit facilities to prepare for a large tax charge that could arise after it’s initial public offering. An existing credit line of $2.5 billion may be enhanced to pay for potential taxes on restricted stock units issued to employees that could follow some six months after the IPO, according to sources with knowledge of the matter.
“All these tax obligations are being created and you need cash to take care of it. You see this all the time but in this case it will be substantial,” said Michael Moe of GSV Capital, which owns Facebook shares. “Having the cash to be able to take care of that makes a lot of sense. That would be the motivator of a larger credit facility.”
In another view, Facebook’s unusual step to help employees with the tax could also snowball into a major charge that may run through the additional credit line and conflict with acquisitions or working capital priorities. However, Facebook is doing nothing new — Zynga (NASDAQ:ZNGA) also created a $1 billion line of credit prior to its IPO last year.
The motivations here may be two-fold: it’s best to borrow money when you can, not when you need it; secondly, use the clout with underwriters and banks before an IPO because that’s when they are most likely to consider the request favorably as quid pro quo for a plum role in the public offer.
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