Slashdot Mirror
Microsoft Sells $17 Billion in Second Bond Deal in Six Months (bloomberg.com)
An anonymous reader shares a Bloomberg report: Microsoft found ample demand for its $17 billion bond offering, allowing it to cut borrowing rates on its second multibillion note offering in six months. The tech giant received at least twice as many orders as it had bonds to sell, according to people familiar with the matter. The longest portion of the offering, which generally refinanced debt maturing soon, was a $2 billion, 40-year bond with a 4.5 percent coupon that yields 1.4 percentage points above Treasuries, according to data compiled by Bloomberg. That's down from initial discussions of about 1.55 percentage points. Moody's Investors Service said Microsoft will use proceeds to refinance commercial paper it sold to help support its takeover of LinkedIn. A regulatory filing shows that at the end of 2016, the Redmond, Washington-based company had $25.1 billion of the debt.
From the linked article:
Microsoft, like many peers in the technology industry, holds the vast majority of its cash overseas. Under current laws, it would pay a tax rate of 35 percent to bring back any of the $116.3 billion it holds abroad. With 95 percent of its cash subject to repatriation taxes, it has relied on the debt markets to fund programs like stock buybacks, acquisitions and refinancing deals.
Moody’s Investors Service gave the bonds its top Aaa rating but maintained its negative outlook on Microsoft. It expects the company’s debt may exceed $90 billion this year if it goes back to the market to fund dividends and share buybacks. Microsoft had about $59 billion of long-term debt at the end of last year, filings show.
So, Microsoft is going to go $90 Billion in debt just so it can avoid paying $38 Billion in taxes.
WTF?
"Companies", as in normal-sized critters, do this all the time. When Megacorps do it, it warrants attention.
In this case, straightforward restructuring of debt makes sense... Microsoft isn't growing like it used to, which only reinforces the need to sell bonds (as opposed to increasing shares of growth stock to cover it, or relying on future market income to wipe out the debt in short order.)
I see it as confirmation that Microsoft's growth is sputtering out, and they know it. Not saying they're dying by any stretch, but more along the lines of Microsoft becoming what IBM has been for a decade now... a maintenance-mode growth curve.
Quo usque tandem abutere, Nimbus, patientia nostra?
In short, there is a fire sale of debt going on and Microsoft is selling. This has more to do with the debt market than with MSFT.
I will slightly disagree with this. I see Microsoft more of a "Value" company (steady profits) instead of a "Growth" company (skyrocketing sales). However the issuing of new debt says little. To oversimplify, debt is good. If equity is expected to yield 10% and debt is expected to yield 2% then one should issue debt and do a stock buy back. A little financial leverage, a little debt shield. All is good as long as the company can support the debt.
As a side note, the market is desperate for high quality debt. Regulations favor debt purchases over stock. Think pension funds. Since the 2008 financial crisis things have gotten worse. 40 years at 4.5%? One would have to be desperate to take on 40 years worth of inflation risk at such a miserly rate. Yet pension funds are pilling in.
Great illustration of how high corporate taxation is counter-productive.
America has the highest corporate tax rate of any country, but has the lowest amount actually collected of any 1st world country. This is because the rate is so high, and so arbitrary, with so many loopholes, that companies can mostly avoid paying. The biggest loophole is that they can avoid the tax by keeping capital overseas, and outsourcing the jobs to the capital, rather than reinvesting in America. So we get the worst of both worlds: low tax collection and job losses. Sad.