Microsoft's Bond Sale Is Largest of the Year

By Mike Cherney 

Microsoft Corp. is outshining Apple Inc. in at least one area: the bond market. Microsoft on Monday is selling $10.75 billion in new bonds, making it this year's largest U.S. corporate debt sale, following Apple Inc.'s $6.5 billion deal last week.

Reflecting good demand for its bonds, Microsoft--one of the few companies that still retains a triple-A credit rating--increased the size of its bond sale from $7 billion, according to S&P Capital IQ LCD. The company is selling bonds with maturities ranging from five to 40 years.

Investors expected big companies like Microsoft, Apple and Merck & Co.--which sold $8 billion in bonds last week--to tap the bond market in size this year. Companies are taking advantage of attractive borrowing costs amid the low-rate environment, and investors are looking for securities that offer higher yields, like corporate bonds, than benchmark government debt.

The bond sale Monday is Microsoft's first since April 2013, according to data provider Dealogic. The company said it would use proceeds from the sale for general corporate purposes, which could include stock buybacks, capital expenditures and repaying existing debt. Moody's Investors Service noted the company plans to complete its remaining $31 billion share buyback program by the end of December 2016.

The bond sale Monday "fits the pattern of investment-grade corporate issuers who, even if they don't need to raise capital, are taking advantage of very, very favorable financing terms," said Jim Kochan, chief fixed income strategist at Wells Fargo Funds Management.

The 10-year Treasury bond on Monday was trading at a yield of around 1.94%. That's higher than the 1.64% it hit last month, but lower than the 3% it was trading at toward the end of 2013.

Microsoft is shopping its bond at lower relative yields than Apple's sale last week. On Monday, Microsoft offered a 10-year bond to yield 0.75 percentage point more than benchmark Treasurys. Apple, which is rated one notch below Microsoft at double-A-plus, last week sold 10-year bonds to yield 0.85 percentage point more than Treasurys.

Write to Mike Cherney at [e-mail]

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