Microsoft raising $3.75 billion in first-ever bond offering
The funds will add to the company's /quotes/comstock/15*!msft/quotes/nls/msft (MSFT 19.34, +0.02, +0.10%) already substantial cash pileAs of March 31, Microsoft said it had $25.3 billion in cash, equivalents and short-term investments
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MSFT 19.34, +0.02, +0.10%
40302010JJASON09FMA"The company is not in need of financing," a Microsoft spokesman said in an e-mailed statementInstead, the company is "taking advantage of good market conditions and Microsoft's great credit rating." Microsoft's board of directors had previously authorized a debt offering on Sept22, 2008
In its filing, Microsoft said it plans to use the proceeds from the sale of the notes for "general corporate purposes," which may include working capital, share buybacks and acquisitions
The company, which carries a Triple-A credit rating, the highest possible, appears to be getting strong demand and a good deal on the debt
"It is their debt IPO, so no one owns the name," said Spencer Lee, who heads the fixed-income trading desk at SCM Advisors LLC, which manages about $5.8 billionAlso, as a large offering, it will likely be added to the bond indexes that serve as benchmarks for many funds, giving investors who track indexes a big incentive to buy the debt
"Many accounts will want to own it just because of those two reasons," Lee said
The sale includes bonds maturing in five-, 10- and 30-yearsThe $2 billion in five-year notes are expected to price at a spread in the area of 95 basis points over risk-free Treasurys, while both the $1 billion in 10-year notes and $750 million in 30-year bonds are seen coming with a spread around 105 basis points, according to bond analystsA basis point is 0.01%
That's means Microsoft will be paying yields between 3% and 5.24%
Current AAA-rated corporate debt yields are 211 basis points above Treasurys, the lowest since last autumn, according to an index of all maturities compiled by Merrill Lynch
"Someone probably told them there is no AAA paper out there and there's demand for the name for diversification," said Andrew Brenner, a bond traders and co-head of structured products and emerging markets at MF Global"It's pretty good for long-term money."
J.PMorgan and Morgan Stanley are leading the bond sale