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Coca-Cola is selling €1bn of new debt that it may use to help pay potential charges arising from a decade-long dispute with US tax authorities, in which the company could owe $16bn.
The proceeds will add to the $7bn of new borrowing by the company this year, which it has said may go towards paying off charges relating to the dispute.
The US soft-drinks maker said on Thursday it planned to issue two €500mn bonds with the proceeds used in part “for making any potential payments in connection with our ongoing tax litigation with the [Internal Revenue Service].”
The “reverse Yankee” issuance — in which US companies raise money in the euro-denominated bond market — comes a day after the Financial Times reported that Coke could owe $16bn in back taxes arising from manufacturing processes located in countries such as Ireland and Brazil.
The total is enough to wipe out a year and a half of profits, with the figure rising by more than $1bn a year. Coke also raised about $3bn across three dollar bonds on Wednesday.
According to a US tax court judgment, Coca-Cola has been hiding “astronomical levels” of profit in low-tax countries to shield it from the US authorities.
The €1bn sum Coke will market this month is split equally over two senior unsecured bonds with maturities of 13 and 29 years, and will also go towards paying the company’s final payment next year on its purchase of Fairlife, a producer of ultra-filtered milk drinks. The funds will also potentially be used to pay off other outstanding debt. Barclays, BNP Paribas and JPMorgan Chase are the bookrunners for the deal, which will be settled on August 15.
Coke’s planned issuance underscores how US companies have been turning to Europe’s bond markets this year, as borrowing costs for euro-denominated debt have been lower than for US dollar debt.
US companies, including Johnson & Johnson and Booking Holdings, had raised a total of €30bn in so-called reverse Yankee deals by May this year, according to data from Bank of America.
In the second quarter Coke raised around $4bn, including €1bn in euro bonds and $3bn in dollar bonds. In an earnings call last month John Murphy, chief financial officer, said the funds would go towards the Fairlife deal and “may include pre-funding upcoming payments related to the IRS tax case”.
The debt issuance comes as Coke readies the payment of an initial $6bn in cash to cover unpaid taxes and interest for the years 2007 to 2009. The sum was finalised last week, the last of a four-year series of court decisions in favour of the IRS.
The beverage group will be able to reclaim the penalty if it wins an appeal, which it plans to launch later this year.
The stakes are not only high for Coke. The $16bn could cover the annual IRS budget and will test the agency’s ability to pursue complicated cases at a time when it has promised to get tough on corporate tax avoidance.
Additional reporting by Stephen Foley in New York