Credit markets may finally be loosening, at least for those whose businesses remain untarnished. For the first time in its 34-year history, Microsoft will be issuing bonds. The company hopes to raise $3.75 billion.
After the jump, the firms on the historic issuance and speculation about what the company may plan to do with the cash.
Simpson Thacher is representing Microsoft, with Microsoft’s Associate GC Keith Dolliver (whose #1 outside counsel pet peeve is “A reluctance to give bad news which can make the underlying problem much worse”) opining on Washington law. Weil Gotshal represents the underwriters: JPMSI, Morgan Stanley, Citi, and Banc of America Securities.
The terms are pretty nice. It’s good to be one of the few remaining AAA credit risks:
Microsoft offered notes maturing in five, 10 and 30 years. A $2 billion, five-year note was priced to yield 2.971% or 95 basis points over comparable Treasury yields, according to a person familiar with the offering.
These rates were much cheaper than those demanded by investors for average investment-grade corporate debt. Spreads on investment-grade bonds stood at 444 basis points as of Friday, according to Merrill Lynch data. On triple-A rated debt, the spreads stood at 211 basis points.
According to the Journal, Microsoft has no specific plan for the cash – probably because the company used the generic intent to use the proceeds for “general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of our capital stock and acquisitions.” Microsoft already has $25 billion in cash and investments, so keeping it in general working capital is pretty unlikely. Raising cash via a debt offering was kicked around in connection with the failed Yahoo negotiations, but this is the first time the company has gone through with a note issue. One analyst commented that it was a good move for Microsoft, which would be able to get a lower price for debt than equity.
The Journal thinks the cash will go to buy back stock, which has dipped 30%. Silicon Alley Insider isn’t so sure, speculating that the cash may go to a renewed Yahoo deal, or to buy a company like SAP or RIM.
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