May 11 (Bloomberg) -- Microsoft Corp., the world’s largest software maker, sold $3.75 billion of debt in its first bond offering, taking advantage of its top credit ratings to help fund a share buyback and technology investments.

The sale was split among $2 billion of 2.95 percent, 5-year notes, $1 billion of 4.2 percent, 10-year debt, and $750 million of 5.2 percent, 30-year bonds, said a person familiar with the offering who declined to be identified.

Microsoft, whose shares have declined 34 percent in the past year, is seizing on a credit-market rally to help fund a $40 billion stock repurchase program. The company, which for years resisted shareholder demands to add debt, is also investing in data centers to compete against Google Inc. in Internet search.

“As a corporation, you should be buying back your stock when it’s cheap,” said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. “It’s probably the cheapest time for them to do it.”

The 5-year notes pay a yield of 0.95 percentage point more than similar-maturity U.S. Treasuries, and both the 10- and 30- year bonds priced at a spread of 1.05 percentage point, the person said.

The Redmond, Washington-based software maker became the first company in a decade to receive the top AAA rating from Standard & Poor’s when it initially filed in September to tap debt markets. Moody’s Investors Service also assigned its highest rating to Microsoft’s debt.

Record Pace

Microsoft is offering bonds on the busiest day for corporate debt sales since June 16, 2008, joining 12 other borrowers. Investment-grade companies have sold $498.9 billion of U.S. corporate bonds this year, 25 percent more than in the same period of 2007, when the debt sold at a record pace, according to data compiled by Bloomberg.

Yields on investment-grade debt relative to benchmark rates have dropped 159 basis points from their 2009 high on Jan. 2, to 444 basis points as of May 8, according to Merrill Lynch & Co.’s U.S. Corporate Master index. The average yield on AAA rated debt has plummeted 396 basis points from its high this year on March 9 to 211 basis points as of May 8, according to Merrill Lynch data. A basis point is 0.01 percentage point.

The Microsoft offering shows “companies are able to access the capital markets here, and that’s good news,” John Calamos, chief executive officer of Calamos Asset Management Inc. in Naperville, Illinois, said today in a Bloomberg Television interview. “The credit markets are alive and well.”

Unique Appeal

Soaring default rates and the deterioration of corporate credit give Microsoft’s debt a unique appeal to bond investors, Lebas said.

“I don’t know the last time you ever thought of tech as a defensive play, but in that sense of the word Microsoft, with its impeccable credit rating, is that defensive play,” Lebas said.

S&P has downgraded 269 speculative-grade companies this year and upgraded 16, analysts led by Diane Vazza at New York- based S&P wrote in a May 6 report.

Microsoft is one of four nonfinancial companies to maintain top rankings from both Moody’s and S&P. General Electric Co. and its finance arm lost their AAA rating from S&P, which they’d held since 1956, on March 12.

Johnson & Johnson

Johnson & Johnson, the world’s largest health products maker, sold $1.6 billion of 10- and 30-year bonds with AAA ratings last June, Bloomberg data show. The 10-year, 5.15 percent notes, priced to yield 103 basis points more than benchmarks at issue, on April 24 traded at 107.5 cents on the dollar to yield 4.16 percent, or 117.4 basis points more than benchmarks, according to Trace, the bond price-reporting system of the Financial Industry Regulatory Authority.

Microsoft has cut about 5,000 jobs since January to reduce expenses as the recession cools demand for software. The company had $25.3 billion in cash and short-term investments as of March 31, according to regulatory filings.

Microsoft reported its first ever decline in sales last quarter as customers opted for cheap laptop computers with older versions of its Windows operating system and the recession hurt the Internet advertising market.

Chief Financial Officer Chris Liddell said in January that the weak economy will provide good opportunities later this year for Microsoft to acquire small and medium-sized companies as the price of such targets declines. That’s part of the reason Microsoft wants to conserve and raise cash, he said.

Capital Expenditures

Much of Microsoft’s cash is generated outside the U.S., and Microsoft needs to pay its dividend, stock repurchases and some of its capital expenditures in dollars, Liddell said in a February speech. Microsoft may borrow in the U.S. to fund some of those activities, and shareholders won’t see Microsoft “significantly leveraging the company in the foreseeable future,” he said at the time.

Microsoft fell 10 cents, or 0.5 percent, to $19.32 as of 4 p.m. in New York in Nasdaq Stock Market trading.

Microsoft initially floated the idea of selling bonds in February 2008, when the company was trying to take over Yahoo! Inc. for $44.6 billion. Yahoo rejected the offer, even after it climbed as high as $47.5 billion.

The company hired JPMorgan Chase & Co. and Morgan Stanley to underwrite today’s offering, the person said.

Proceeds will be used for general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of capital stock and acquisitions, according to a filing today with the U.S. Securities and Exchange Commission.

The company halted share repurchases last quarter after buying back $9 billion in stock in the previous six months. In the future, Microsoft will “be a net purchaser of our shares,” Liddell said last month.

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

Last Updated: May 11, 2009 18:00 EDT