Microsoft Sets 2017 High With $17 Billion Bond Sale -- Update
January 30 2017 - 7:31PM
Dow Jones News
By Sam Goldfarb
Microsoft Corp. sold $17 billion of bonds, capping a busy month
for corporate-debt 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 Monday 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
with a 3.3% coupon, are expected to be used for general corporate
purposes, including the repayment 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 data provider Dealogic. Many firms are wary of
rising interest rates and of 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 as much as $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 have limited any effect of bondholders'
distaste for the practice.
Microsoft shares have climbed 18% over the past year, but closed
down 1%, at $65.13, on Monday.
Microsoft has had 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 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 earlier.
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 Global
Market Intelligence. 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 companies have issued debt this month is because 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 19:16 ET (00:16 GMT)
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