How Amazon Acquired Whole Foods: A Case Study in Debt Financing

Updated on May 14, 2020
lani81 profile image

MBA graduate Lani has spent the past 8 years, researching, discussing and writing about major concepts relating to business and leadership

Corporate Bonds

Stocks are a way for investors to purchase a portion of an organization and share in its future profits. Investors buy corporate-issued bonds to lend money as a loan, earning interest for the life of the loan. Corporations issue bonds as debt securities (loans) to investors to fund significant projects and overhauls such as new business segment development or large-scale acquisitions. Investors accept loan default risks based on credit ratings and the issuing organization's ability to generate enough profits to repay debt obligations.

Collateral is not required when issuing corporate bonds; instead, investors must rely on the debt issuer's credit rating to determine the likelihood of default. Collateral is a form of insurance designed to cover debt in the absence of cash. Without it, risks are higher as investors are left to rely solely on the issuing organization's ability to repay debt with future earnings. Fortunately for investors, interest rates on corporate bonds are higher than other types of debt securities such as treasury bills, notes, and government-issued bonds.


The risks involved in financing corporate bonds are usually reflected in the bond price, influenced by default and term structure as well as illiquidity (Elkamhi, Ericsson & Wang, 2012). Credit, interest, and liquidity are categories of corporate bond risks directly attached to the performance of the issuing organization. Some corporate bonds have provisions, providing limited insurance against common types of corporate bond risk, but in no way provide a fail-safe. Risk is inevitable and unavoidable.

Therefore, understanding risk is pivotal for investors and corporate bond issuers alike. However, between the two, bondholders are most vulnerable to the threats of default. Without collateral, investors are gambling on the issuer’s capacity to turn profits. Amazon can use debt financing as a funding resource because of its proven ability to maintain market share and generate cash.

Credit Rating

An organization’s credit rating is a principal measure when speculating the investment value of a corporate bond. Credit ratings issued and affirmed by reputable credit rating agencies (CRAs) are required for corporate borrower eligibility (Duff, & Einig, 2015), and rely heavily on the expected yield performance during the time frame proposed in the bond. Credit quality designations vary with each CRA ranging from high (‘AAA’ to ‘AA’) to medium (‘A’ to ‘BBB’) to low (‘BB’, ‘B’, 'CCC’, ‘CC’ to ‘C’) (Chen, 2017). Amazon’s credit rating during acquisition funding for Whole Foods was increased to -AA, adequate to justify debt financing well into the billions.

The Acquisition

Amazon announced it would acquire Whole Foods in June 2017 for $13.7 billion in cash (Cusumano, 2017). Whole Foods is a national grocery chain catering to upper-middle-class health-oriented customers and boasts over 500 stores nationwide. To fund such a large purchase, Amazon proposed to sell an estimated $16 billion in bonds across seven different maturities (Stone, 2017). Traditionally bonds have a specified maturity date at which time the par value of the bond must be paid (Brigham & Ehrhardt, 2017). The maturity dates for Amazon’s collection of bonds ranged between seven and forty years.

The most popular, 10-year notes, are expected to have a coupon rate of around 3.35% (Stone, 2017). The par value for a bond is the stated value at its inception; the coupon rate is the coupon payment (annual or bi-annual) divided by the par value (Brigham & Ehrhardt, 2017). Bank of America, Merrill Lynch and Goldman Sach’s were responsible for facilitating the underwriting for the $13.7 billion bridge loan. Relying heavily on Amazon’s credit ratings and the projected positive effects of combining with Whole Foods; each financial institution pledged $6.85 billion in 7 to 40-year bonds to finance the union (Brown, 2017). Jeff Bezos’ e-commerce goliath has long focused on substantial investments designed strictly to grow business and increase market share, rather than driving profitability (Clark, 2014). Amazon’s credit rating is no stranger to fluctuations. Fortunately for Bezos, market analysts continue to perceive Amazon bond securities as being well within an investment-grade territory (Clark, 2014).

What It All Means

Market analysts believe the merger will translate to immediate positive credit ratings as future expectations continue to increase for both organizations. Partnership with Whole Foods will make Amazon’s entry to grocery delivery smooth, convenient, and accessible for millions of customers via established locations around the world.


Brigham, E.F., & Ehrhardt, M.C. (2017). Financial management: Theory & Practice 15th ed. Mason, OH: Cengage Learning. ISBN: 9781305632295

Brown, S. (2017). GlobalCapital. 7/10/2017, p1-1. 1p. , Database: Business Source Complete

Chen, J. (2017). Credit Quality. Retrieved from

Clark, E. (2014). Moody's Cuts Outlook After Amazon Debt Offer. WWD: Women's Wear Daily, 01495380, 12/2/2014, Vol. 208, Issue 112

Cusumano, M.A. (2017). DOI: 10.1145/3132722. Amazon and Whole Foods: Follow the strategy (and the money). Checking out the recent Amazon acquisition of Whole Foods. Communications of the ACM, Vol#60, No. 10.

Duff, A., & Einig, S. (2015). Debt Issuer: Credit Rating Agency Relations and the Trinity of Solicitude: An Empirical Study of the Role of Commitment. Journal of Business Ethics, 129(3), 553-569.

Elkamhi, R., Ericsson, J., Wang, H. (2012). Journal of Futures Markets. Nov2012, Vol. 32 Issue 11, p1060-1090. 31p. DOI: 10.1002/fut.20546. , Database: Business Source Complete

Stone, A. (2017). Amazon is selling bonds to fund whole foods purchase. Retrieved from

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2019 Lani Morris


    0 of 8192 characters used
    Post Comment
    • lani81 profile imageAUTHOR

      Lani Morris 

      11 months ago from Seattle, WA

      Thank you for reading my article and becoming a follower. This case study is designed to be a part of an Amazon series. Check out my first article about Amazon's initial public offering:

    • Larry Slawson profile image

      Larry Slawson 

      11 months ago from North Carolina

      Very informative. Thank you for sharing!


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)