Microsoft latest tech to borrow big

February 09 23:11 2015

Microsoft Monday filed plans to sell a massive amount of debt, the latest in borrowing by rich tech companies. The computing giant is negotiating with potential buyers of $7 billion in debt with maturities ranging from five to 40 years. Demand is strong as the rating agency Standard & Poor’s as reaffirmed Microsoft’s pristine AAA-credit rating and the deal size could grow, says Reuters. Microsoft is one of just three companies with the perfect AAA credit[2]

Microsoft’s bond offering follows another from tech giant Apple, which sold $6.5 billion in debt last week. These tech companies are using debt to deal with a tax problem. Both Microsoft and Apple have huge cash piles of cash sitting overseas. U.S. investors want the cash back, in the form of stock buybacks and dividends. But if these companies bring overseas cash to U.S. shores, a tax bill could be due.

So rather than bringing cash to the U.S., these companies can avail themselves of the super-low interest rates and borrow. Those borrowed funds can be used to fund share buybacks and dividends – without triggering a tax event. Microsoft is certainly not hurting for cash. The company ended 2014 with cash and investments of $102 billion – making it one of the most well-funding companies in the world. Before the current offering, Microsoft was carrying $18.2 billion in long-term debt, which is up 52% from two years ago, says S&P Capital IQ.

S&P said is doesn’t plan to downgrade Microsoft due to the latest debt offering. Our ‘AAA’ corporate credit rating and stable outlook on Microsoft remain unchanged,” according to an S&P statement to investors. “The corporate credit rating incorporates our assumption that Microsoft will maintain a “minimal” financial risk profile assessment, with adjusted leverage below 0.5x.” Microsoft’s stock price rose 22 cents, or 0.5%, to $42.63.