Although Facebook is expected to raise as much as $10 billion dollars with their upcoming initial public offering (IPO), the popular social network is reportedly requesting that their $2.5 billion line of credit be increased ahead of the IPO. The line of credit was initially opened in February of last year in the amount of $1.5 billion and was increased last September to $2.5 billion.
The majority of Facebook employees’ stock is in the form of restricted stock units (RSUs), which cannot be sold until after the IPO. The Facebook RSUs, which are shares that Facebook employees have been promised by the company, will not vest until six months after Facebook has gone public. The increased credit line will enable Facebook to cover the tax bill on the RSUs when the RSUs vest and relieve employees of this major tax burden.
Due to the expense associated with covering the taxes on the RSUs, it is highly unusual for a company to foot the tax bill. Although the exact amount of taxes due will be based on the trading price of Facebook stock at that time, the amount is expected to be billions of dollars.
Bart Greenberg, a partner sat Haynes and Boone LLP and start-up adviser, warned of the dangers of covering employees RSU tax burden:
“Helping employees cover tax on RSUs is relatively unusual and leaves the employer with a very expensive obligation that could increase if Facebook shares climb. It could create such a large cash obligation that it eats up most of the credit facility. That facility may have been originally set aside for acquisition opportunities or working capital.”
Facebook is expected to go public later this year at a stock price that equates to a $100 billion valuation.