Facebook Seeks More Credit

After filing for its initial public offering last month, Facebook is looking to hire additional banks in order to give the social network giant more credit.  According to Reuters, Deutsche Bank (NYSE:DB), Credit Suisse (NYSE:CS) and Citigroup (NYSE:C) are likely to be added to Facebook’s IPO.

Reuters explains, “The addition of new banks coincides with an increase in the size of Facebook’s credit line, which currently stands at $2.5 billion. One source said the credit line may be in the range of $5 billion, but that this was still in flux.”  The sources discussing the additional banks did not want to be named, as they did not receive authorization to speak publicly about the matter.  A spokesman for Facebook also declined to comment on the subject.

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Previously, major banks such as Morgan Stanley (NYSE:MS), J.P. Morgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC) and Barclays (NYSE:BCS) were hired to conduct Facebook’s IPO.  If Facebook’s credit line grows to the estimated $5 billion, it would eclipse Google’s (NASDAQ:GOOG) credit line of $3 billion.  The search giant is currently the most valuable U.S. internet company.

The expanded credit amount is expected to help Facebook pay taxes related to its IPO, and the potential legal costs involved with Yahoo (NASDAQ:YHOO), which recently announced plans to bring Facebook to court over technology patents.  Although going public with debt is not common for an internet company, many believe the Facebook hype will overshadow any concerns.  Sameet Sinha, an analyst at B. Riley & Co. explained, “The demand for Facebook’s stock is going to be so high that I think most investors are just going to overlook this aspect.  I don’t see it impacting the overall valuation.”

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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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com