Software developer Microsoft Corporation (MSFT) made the most of investor demand for the highest-rated corporate securities and sold $10.8 billion in new bonds, making it the largest U.S. corporate debt sale so far this year and the tenth-largest issue of all time.
Microsoft had increased the size of its debt offering from $7 billion, taking advantage of attractive borrowing costs and strong demand generated due to low interest rates. The issue follows Microsoft’s announcement on Jan 26 of its intention to complete an existing $40 billion share repurchase program by the end of Dec 2016.
The offering included a series of bonds ranging in maturities from 5-40 years. Microsoft sold notes in six parts, including $2.25 billion of 40-year debt with a 4% coupon, as per Bloomberg. Total orders reached $37 billion as investors queued up to purchase the securities, which pushed Microsoft to resize the offering.
The issue follows Apple Inc.’s (AAPL) $6.5 billion deal last week. Microsoft’s debt issue was assigned an Aaa rating by leading credit rating agency, Moody’s. This is not surprising though as the software developer already has been assigned a triple-A rating as a corporate issuer.
The rating also reflects the company's leading position in the software space along with a strong market share for its core products that generate over 80% of its revenues.
Given its significant financial strength, strong recurring revenues and high customer retention rates due to high software switching costs and long product life cycles, the company is well placed to face challenges related to development in technology, and replacement both through acquisitions and internal investment strategies.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as in maintaining credit worthiness in the market. Moody’s Aaa rating is an investment grade rating, indicating highest quality obligations with minimal credit risk.
Standard & Poor’s also assigned an Aaa rating to the debt issuance and the sale was managed by Barclays (BCS) and Citigroup (C). Microsoft plans to use the money for general business purposes and to help fund share buybacks. Microsoft has around $20 billion in outstanding debt with existing maturity dates ranging from 2015 to 2043.
Microsoft’s second quarter 2015 financial report showed that the quarter ended with cash and short term investments balance of $90.25 billion, up $1.06 billion during the quarter. The net cash position was around $61.90 billion ($7.55 a share), down from $65.47 billion ($7.95 a share) at the beginning of the quarter..
Microsoft shares currently hold a Zacks Rank #4 (Sell).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment