MSFT Microsoft Corporation

By Sam Goldfarb 

Microsoft Corp. was set to sell $17 billion of bonds Monday, capping a busy month for corporate bond issuance with the largest deal of the young year.

Surprising investors with such a big deal so soon after it sold $19.75 billion of bonds last August, Microsoft nonetheless met with a warm reception from the market, allowing it to increase the size of the offering from an initial estimate of $14 billion.

Proceeds from the seven-part deal, which includes a 10-year bond sold with an interest rate 0.85 percentage point above Treasurys, are expected to be used for general corporate purposes, including the retirement of short-term debt used to help fund Microsoft's $26 billion acquisition of LinkedIn Corp.

Investment-grade companies have sold $146 billion of bonds this year, the most for any comparable period on record going back to 1995, according to Dealogic. Many firms are wary of rising interest rates and potential tax changes that could make it costlier to issue debt, analysts said.

Microsoft issued its first bonds in 2009 and has kept issuing bonds even as it pursued an ambitious share-repurchase program. In September, the company announced plans to boost its dividend by 8% and buy back up to $40 billion in stock as it neared completion of its previous share repurchase program.

In general, share buybacks funded directly or indirectly by debt are unpopular among bond investors, who would rather companies use bonds to refinance existing debt or invest in their business. But stock investors like the programs, and low interest rates and steady economic growth so far have limited any effect of bondholders' distaste for the practice.

Microsoft shares have climbed 18% over the past year, closing Monday at $65.13.

Microsoft has been enjoying a renaissance of late with the growth of its cloud-computing business, stirring hopes that its stock price can keep rising, said Jordan Chalfin, a senior analyst at the research firm CreditSights.

The company last week posted $5.2 billion in second-quarter net income, or 66 cents a share, compared with a profit of $5.02 billion, or 62 cents a share, a year ago.

Microsoft's long term debt totaled $59.3 billion at the end of last year, up from zero in mid-2008, according to S&P Capital IQ. But it still has a large cash balance and the highest possible credit ratings from both Moody's Investors Service and S&P Global Ratings.

"If you think your stock is cheap and you're not going to be penalized," there is no reason not to issue bonds, Mr. Chalfin said.

Before the Microsoft offering, the largest corporate bond sale this year was a $13.55 billion issuance from Broadcom Ltd. on Jan. 11. The largest sale last year came from Anheuser-Busch InBev, which issued $46 billion of bonds.

One reason why companies have issued debt this month is that they are concerned that government bond yields could keep rising, making borrowing more expensive, said Matt Brill, a portfolio manager at Invesco.

Another involves tax proposals put forward by congressional Republicans that would eliminate the tax deduction for net interest payments. Though it is unclear whether such a plan would become law and in what form, companies are betting that it could happen but that the interest on existing bonds would be exempted, Mr. Brill said.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

January 30, 2017 17:32 ET (22:32 GMT)

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