Cisco Borrows $8 Billion in Bond Sale to Help Finance Buybacks

Cisco Systems Inc. (CSCO) raised $8 billion with the biggest bond sale of 2014 to help finance stock buybacks after the shares lost almost 6 percent over six months.

Cisco issued debt in seven parts with fixed- and floating-rate securities in the largest offering of investment-grade bonds in the U.S. since Verizon Communications Inc. issued a record $49 billion in September, according to data compiled by Bloomberg. Unlike that unprecedented offering and Apple Inc. (AAPL)’s $17 billion sale in April, Cisco’s transaction doesn’t include debt maturing in more than 10 years.

The sale follows a forecast from San Jose, California-based Cisco that revenue for the fiscal third quarter may miss some analysts’ estimates amid weakness in emerging markets and a slump in demand from telecommunications-service providers. Though the company repurchased $4 billion of stock in the three months ended Jan. 25, Cisco shares delivered losses to investors in that period while the Standard and Poor’s 500 Information Technology Index gained almost 7 percent.

“There’s just been overwhelming demand in the front-end for well-known issuers with strong fundamentals,” said Thomas Chow, a Philadelphia-based money manager at Delaware Investments, which oversees about $190 billion. “Though Cisco itself hasn’t had smooth sailing from the equity perspective, the bond market is willing to take on that risk. It has a large cash balance and a dominant position in product lines that aren’t going to disappear overnight.”

Returning Capital

Proceeds may be used by the world’s biggest maker of network routers and switches to repay $3.75 billion of notes maturing this year and to return capital to shareholders, Cisco said today in a regulatory filing. The company last sold bonds in March 2011, Bloomberg data show.

Cisco issued $2.35 billion of floating-rate securities, split between maturities of 18 months, three years and five years. It also sold $2.4 billion of 1.1 percent notes due in 2017, $1.75 billion of 2.125 percent, five-year bonds, $500 million of 2.9 percent securities maturing 2021 and $1 billion of 3.625 percent, 10-year debt.

Cisco is rated A1 by Moody’s Investors Service and AA- at S&P, Bloomberg data show.

To contact the reporter on this story: Charles Mead in New York at cmead11@bloomberg.net

To contact the editor responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net

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