Markets

Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

President Donald Trump has promised a lot to Corporate America. Some companies don't appear convinced that he'll come through in short order.

Among other pledges, Trump says he plans to make it cheaper for companies to bring back to the U.S. cash that's now stashed overseas to avoid paying high tax rates. Some analysts expect a so-called tax holiday later this year, which would allow companies like Microsoft and Google to bring money back into the country at much lower rates.

Given that there's a huge stack of money poised to return to the U.S., it's curious that Microsoft is suddenly in the market to raise an additional $17 billion in debt, less than six months after its unprecedented $19.75 billion bond sale. This is especially the case since the Redmond, Washington-based company has $122.8 billion of cash.

Bond Blast
Microsoft has significantly increased its U.S. debt sales in recent years
Source: Bloomberg

Some analysts have pointed out that the company has $25.1 billion of short-term debt on its books maturing in less than a year. It makes sense to borrow more longer-dated debt to pay off those securities while locking in historically low borrowing costs if Microsoft can't pay them off with existing cash. While the company has a lot of cash, the vast majority, or about $116.3 billion, is parked overseas.

That's the giveaway that Microsoft isn't convinced it will be able to bring all that overseas money back soon without paying heavy levies. Yes, investment-grade bond yields are relatively low, but interest payments add up on billions of dollars. And while Microsoft has a triple-A rating, Moody's has given it a negative outlook in large part because of its prolific borrowing habits.

Big Start
U.S. investment-grade companies have sold a record volume of debt to start the year
Source: Bloomberg
Data for 2017 goes through Jan. 30

Microsoft isn't alone in borrowing money when it hardly seems to need it. Almost 11 percent of January's record volume of U.S. investment-grade bond sales has been issued by cash-flush technology companies.

Tech Invasion
Tech companies have accounted for a growing proportion of overall corporate-debt sales
Source: Bloomberg
2017 figure is for January. It compares with no tech issuance in January 2016 and 1% for the month in 2015

These borrowers have a disproportionate amount of cash on their books, and a considerable amount is held offshore. If they were expecting a near-term opportunity to bring all this money back on the cheap, it's hard to understand why they'd possibly incur more debt. Indeed, as Bloomberg Intelligence's Yung Chuan Koh pointed out, a cash repatriation tax holiday would probably result in fewer corporate-bond sales. 

For now, companies appear to be going about their financial plans without an expectation that Trump will come through on a plan that makes it cheaper for them to repatriate their money. This makes sense. Politics are messy and unpredictable. It's wise to take advantage of the lower-cost option they already have.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net