Facebook Ensures Financial Liquidity With A $ 6.5 Billion Revolving Credit From JP Morgan

Facebook has signed-up with JP Morgan Chase Bank for a ‘Revolving Credit’ Facility worth US$ 6.5 Billion. The deal inked last week allows the social media company to utilize funds from the Chase Bank’s coffers to cover its capital expenditure and few other similar purposes. Facebook confirmed the same in an official filing to the US Securities and Exchange Commission (SEC),

On August 15, 2013, Facebook entered into a five-year senior unsecured revolving credit facility with JPMorgan Chase Bank as Administrative Agent and the lenders party thereto. The 2013 Revolving Credit Facility replaces the company’s existing credit facilities and allows the company to borrow up to USD 6.5 billion to fund working capital and general corporate purposes.”


Does Facebook need such liquidity?

A revolving credit is essentially a Bank’s assurance of a certain amount of lend-out, to consumers or corporates. Though it may be considered a loan, the terms and interest vary by a high margin and to ensure such preferential treatment, the borrower is asked to pay a ‘Commitment fee’ apart from some other expenses related to the facility. “Under this newly signed credit facility, Interest will be payable on the borrowed amounts set at the London Interbank Offered Rate (LIBOR) plus 1 per cent” revealed Facebook.

Facebook’s mobile centric endeavors and advertising initiatives therein, have started to make good money. For the Second Quarter, Facebook posted net income of US$ 333 Million. A significant contribution of that profit came from mobile advertising. Facebook’s advertising revenues grew an impressive 61% to US$ 1.6 Billion, but more importantly, revenues from mobile ads accounted for 41% of the total revenues. In other words, Facebook seems to be settling in on both the fronts, of its usage.

Facebook has been doing well even from the subscriber count. Number of users in countries like India, have gone up considerably. Hence, it doesn’t come as a surprise that Facebook terminated its existing undrawn US$ 5 Billion revolving credit facility and renewed it with a higher sum of US$ 6.5 Billion. Do you think Facebook may need to tap into this standby stockpile?

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