Facebook to Halve Its Credit Line

There's at least one benefit to a slumping stock price: Lower taxes.

Facebook Inc. FB -4.73% is planning to reduce a $3 billion line of credit that it received from its bankers prior to its May initial public offering to $1.5 billion, according to people with knowledge of the discussions. The social network also plans to expand the loan's term to three years from one year, these people added.

The plans aren't yet finalized, said these people. But the plans reflect how Facebook doesn't need as much money to pay for tax liabilities associated with the vesting of employee stock, said these people, and gives the company more time to repay its bankers.

The changes are a ripple effect of how far Facebook's stock has fallen since the company went public in May with a heady $104 billion valuation. Since its IPO, Facebook's stock has been battered by concerns about the company's ability to make money and investor skepticism over the broader social media industry. The social network's stock is off nearly 45% from its $38 IPO price and on Friday closed at $20.91.

In earlier regulatory filings, Facebook had said it would aim to fund tax obligations through another stock offering and added that it would use loans or its cash reserves if market conditions weren't favorable.

But its slumping stock price has made it difficult for Facebook to pump more shares into the market—which the company acknowledged when it confirmed last month that it wouldn't pursue a secondary offering.

In the months leading up to its IPO, Facebook had dramatically expanded its access to capital. Drawing from its large pool of underwriters, it upped one credit line to $5 billion and added a $3 billion bridge loan, earmarked specifically for its tax bill. According to filings, two of Facebook's lead underwriters, J.P. Morgan JPM -0.26% and Morgan Stanley MS +0.17% are joint lead arrangers of the bridge loan.

J.P. Morgan and Morgan Stanley declined comment.

As employee stock options vest, Facebook has to withhold roughly 45% to pay taxes. In filings, Facebook recently estimated its tax bill at nearly $2 billion.