By Mike Cherney
Microsoft Corp. is outshining Apple Inc. in at least one area:
bond sales.
The software giant on Monday completed the largest U.S.
corporate-bond sale this year, selling $10.75 billion in debt with
maturities of five to 40 years. The sale surpasses a pair of
megabonds issued last week, an $8 billion sale by drug maker Merck
& Co. and a $6.5 billion deal from electronics titan Apple.
Investors on Monday lined up to purchase debt from the Redmond,
Wash., company, prompting Microsoft to boost the size of the sale
from $7 billion, according to S&P Capital IQ LCD. The company
is one of the few U.S. firms with a pristine triple-A credit
rating, reflecting strong profitability and a light debt load.
Investors expect big companies like Microsoft, Apple and Merck
to tap the bond market in size this year, even though many don't
immediately appear to need the cash. Companies are taking advantage
of attractive borrowing costs following a sharp decline in some
developed economy government-bond yields, while investors are
seeking out securities that offer higher yields than ultrasafe U.S.
debt.
Microsoft's 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.
Many of the largest bond issuers, including Apple and Microsoft,
have large cash reserves that were earned overseas and would be
subject to U.S. taxes if repatriated. Company executives are
finding it more cost-effective to borrow money in the U.S. bond
markets at the low rates currently available than bringing the
money home.
Apple could sell its first bond denominated in Swiss francs on
Tuesday. The company last year sold EUR2.8 billion ($3.16 billion)
of debt in euros. Yields on developed-country government debt in
Europe, where the European Central Bank recently announced a
bond-buying stimulus program in response to sluggish economic
growth and falling inflation, are even lower than in the U.S.
Even in the often-staid bond market, Apple can still garner
excitement among investors. The company is the largest in the world
by stock-market value and recently reported a record $18 billion
profit for the latest quarter, an increase of 38%. Its $17 billion
bond sale in April 2013 was the largest on record at the time,
before it was surpassed that year by $49 billion from Verizon
Communications Inc.
Microsoft is coming off a tougher quarter in the latest period.
Sales of software to corporations, including Windows, Office and
computer-server products, came in below analyst expectations. Net
income fell compared with the same period last year.
Zachary Chavis, a portfolio manager at Sage Advisory Services,
which oversees $11 billion, sat out Microsoft's bond sale on Monday
but said his firm planned to buy some of the new bonds in the
coming days. "The fact is there's not a lot of triple-A paper out
there," he said.
Microsoft's bond sale Monday is its first since 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.
Microsoft shopped 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. The
10-year Microsoft bond priced at a yield of 2.724%.
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.
The 10-year U.S. Treasury note on Monday closed at a yield of
around 1.98%, up from 1.64% it hit last month but down from 3%
toward the end of 2013. Bond prices rise when yields fall and vice
versa.
Write to Mike Cherney at mike.cherney@wsj.com
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