If you’re unaware, Microsoft has recently acquired the professional social network LinkedIn in an all-cash deal for $26.2 billion. To fund the same, Redmond has partaken in its biggest ever corporate bond sale and raised a whopping $19.75 billion.
The fifth largest corporate bond sale on record was met with intense demand as fixed income investors headed out in search of more income. Investors put in more than $50 billion of orders to become a part of the biggest bond sale. According to people familiar with the deal, Microsoft has issued $19.75bn of debt with seven maturities and the strong demand has also helped it borrow money at lower rates. This has also saved the company about $40 million in annual interest payments, as compared to what it had to pay initially.
Since it is the fifth biggest bond sale, — as stated above — it ranks behind bond offerings from Verizon, Anheuser-Busch InBev, Actavis and Dell. Microsoft’s sale was composed mainly of fixed-rate notes maturing in between 3 and 40 years. But, the investor demand was strongest for 10 and 30 year bonds papers.
The official regulatory filing dispenses more detail on the bond papers and reports that,
The transaction included $4bn of 10-year notes, which priced with a yield 90 basis points above the benchmark US Treasury, or roughly 2.42 per cent. New 30-year bonds priced with a yield of 3.73 per cent, 5 bps above existing debt that matures in 2045. The longest portion of the debt is a 40-year bond that yields 1.8 percentage points above Treasuries.
The bond papers were assigned the top AAA(triple A) grade by most rating agencies including S&P Global Ratings and Moody’s Investors Service, among others. Research firm CreditSights also changed its rating for the bonds and assigned it a ‘buy’ tag instead of a ‘hold’ one.
Microsoft will primarily use the freshly infused funds(even though in the form of debt) to fund the LinkedIn transaction, which is expected to close by the end of this year. But in the official regulatory filing, it also adds,
The proceeds from this bond sale may also be used for general corporate purposes including working capital, debt repayments, and share buybacks.
Microsoft now joins the growing list of US blue-chip companies, including Apple, Walt Disney, etc. who have taken advantage of record low-borrowing rates in the market. Bloomberg has previously also added that Redmond is issuing more debt to purchase LinkedIn because it wants to avoid an increase in its taxation — wherein companies with cash holdings from overseas profits have to pay a 35 percent tax to repatriate those funds to the U.S.