Home Facebook Increasing Credit Line To Pay Taxes On Employee Shares

Facebook Increasing Credit Line To Pay Taxes On Employee Shares

Facebook wants to increase its $2.5 billion credit line, according to Reuters.

The company declined comment but Reuters said the increased credit line will be used to pay taxes the company faces for employee stock awards after it goes public. Facebook announced its initial public offering last month and said it was taking the somewhat unusual step of agreeing to cover taxes on restricted stock units.

The actual tax hit won’t be known until Facebook shares start trading: the higher the shares are priced, the higher the tax bill. Bart Greenberg, a partner at law firm Haynes and Boone LLP who advises start-up tech companies, told Reuters it will be a “very expensive obligation” with estimates in the billions of dollars range.

“You see this all the time but in this case it will be substantial,” Michael Moe of GSV Capital, which owns Facebook shares, told Reuters. “Having the cash to be able to take care of that makes a lot of sense. That would be the motivator of a larger credit facility.”

Companies often move to extend credit lines when they’re financially sound, following a principle of “get it when you can, not when you need it.” Facebook, with the huge cash infusion of its IPO just around the corner, is in a strong position.

But using the credit line to pay taxes could mean it has less room for other things, like acquisitions, Greenberg said.

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