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IBM Trying to Steer Clear of Bond Market’s Triple-B Bogeyman

Acquisition announced Sunday will be second-largest tech deal ever. Ratings agencies are already evaluating the impact on IBM’s debt load.

By Molly Smith | Updated on October 29, 2018

International Business Machines Corp. (IBM) is trying to avoid the fate of other companies that loaded up on debt to fund acquisitions, saying it will use some of its cash hoard and suspend share buybacks in an effort to prevent downgrades to the cusp of junk.

The company’s acquisition of Red Hat, for $33 billion, will be the world’s second-largest technology deal ever and will boost IBM’s credentials in the fast-growing and lucrative cloud market. The transaction will also take IBM’s debt load close to $80 billion, according to Bloomberg Intelligence analysts Robert Schiffman and Mike Campellone. IBM will use cash from its more-than $14 billion pile, as well as debt sales, to fund the deal, it said in a statement announcing the deal Sunday.

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