Coca-Cola goes reverse Yankee by promoting €1 billion of Euro debt to cowl a possible tax cost

The corporate, which sells its eponymous drink just about in each a part of the world, has been in a long-drawn dispute with tax authorities within the U.S. over a $16 billion cost that it might probably owe. 

Whereas the complete quantity hasn’t come due but, Coca-Cola is making ready for the potential value by promoting €1 billion in new debt, the Monetary Occasions reported Thursday.

The beverage firm mentioned final week that it’s making ready to pay $6 billion over unpaid taxes and curiosity about 15 years in the past following a U.S. tax courtroom ruling. 

Coca-Cola plans to situation two €500 million bonds and apply the proceeds to “potential payments” in its dispute with the Inner Income Service (IRS). 

The corporate’s “reverse Yankee” transfer, whereby U.S.-based corporations increase cash in Euro or Sterling bond markets, has change into extra frequent amongst corporations on the lookout for debt financing avenues. It permits American corporations to reap the benefits of central financial institution financial insurance policies in several areas. It may be a great tool if they’ve sprawling European operations and want monetary within the native foreign money.

In recent times, bike firm Harley Davidson and client big Colgate-Palmolive have resorted to the reverse Yankee route. Earlier this 12 months, Johnson & Johnson opted for this technique to boost €2.5 billion by tapping on decrease borrowing prices in Europe.

This type of bond issuance noticed a significant spike in 2019 when the European Central Financial institution’s stimulus push impacted bond yields in Europe. By Could, roughly €30 billion had been raised in EU bonds by U.S.-based corporations, based on Financial institution of America analysis. 

This bodes effectively for Europe as buyers within the area might be uncovered to American corporations with out endeavor the U.S. greenback debt’s danger, in accordance to funding agency T.Rowe Value. 

Coca-Cola raised €1 billion in Euro bonds earlier this 12 months, together with $3 billion in U.S. greenback bonds, which have been supposed to finance a deal and assist offset the IRS case costs.   

The U.S. courtroom judgment discovered that the Atlanta, Georgia-based had made “astronomical levels” of income by working in low-tax nations and retaining that away from the eyes of U.S. authorities. That has resulted in a possible $16 billion legal responsibility as Coca-Cola has manufacturing places worldwide and is sufficient to nullify a 12 months and a half’s income on the gentle drinks big. 

Coca-Cola plans to enchantment the courtroom’s choice. 

Representatives on the firm didn’t instantly return Fortune’s request for remark.