Microsoft Sells $17 Billion in Second Bond Deal in Six Months

  • Tech giant will use proceeds to refinance short-term debt
  • Credit graders maintain AAA rating on Microsoft debt

Microsoft Corp. found ample demand for its $17 billion bond offering, allowing it to cut borrowing rates on its second multibillion note offering in six months.

The tech giant received at least twice as many orders as it had bonds to sell, according to people familiar with the matter, who asked not to be named because the deal is private. The longest portion of the offering, which generally refinanced debt maturing soon, was a $2 billion, 40-year bond with a 4.5 percent coupon that yields 1.4 percentage points above Treasuries, according to data compiled by Bloomberg. That’s down from initial discussions of about 1.55 percentage points.

Moody’s Investors Service said Microsoft will use proceeds to refinance commercial paper it sold to help support its takeover of LinkedIn. A regulatory filing shows that at the end of 2016, the Redmond, Washington-based company had $25.1 billion of the debt.

Microsoft’s return was surprising given expectations that President Donald Trump and Congress will approve a repatriation tax holiday for U.S. corporations with money abroad, said Jack Flaherty, a New York-based money manager at GAM Holdings AG. Republicans are also weighing related proposals such as cutting corporate tax rates, changing interest deductibility and adjusting accounting treatment of capital expenditures, which may delay the legislation.

Money Abroad

“Are these last hurrahs? I’m not quite sure," Flaherty said. “There are a lot of details. It’s going to take a little longer.”

Microsoft, like many peers in the technology industry, holds the vast majority of its cash overseas. Under current laws, it would pay a tax rate of 35 percent to bring back any of the $116.3 billion it holds abroad. With 95 percent of its cash subject to repatriation taxes, it has relied on the debt markets to fund programs like stock buybacks, acquisitions and refinancing deals.

Moody’s Investors Service gave the bonds its top Aaa rating but maintained its negative outlook on Microsoft. It expects the company’s debt may exceed $90 billion this year if it goes back to the market to fund dividends and share buybacks. Microsoft had about $59 billion of long-term debt at the end of last year, filings show. S&P Global Ratings assigned the bonds an equivalent AAA grade.

Barclays Plc and HSBC Holdings Plc managed the sale, according to a filing.

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