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.
Companies do this all the time to finance themselves.
/.
The fact it's Microsoft doesn't warrant a front page story on
Next there'll be a front page submission about Nadella taking a dump.
The only way the federal government will survive its debt and obligations is to inflate.
Nonsense. The US had greater debt obligations as a % of GDP at the end of WWII and dealt with them without printing money. They just raised taxes and lowered spending to an appropriate level rather than pretending that we can borrow endlessly and somehow magically bring in more tax revenue by collecting less taxes.
And when it does you can kiss the value of this 40 year bond goodbye.
That only matters if you are worried about the secondary market value of the bond. Personally I can't imagine why anyone would want to buy this bond given how low the rate of return is but obviously there were some parties interested (ahem... sorry for the pun)
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?
Yes, if they brought the 90 Billion into the USA where it is needed they would have to pay taxes on it. Makes more sense to sell bonds in the US and leave the money "overseas" invested in US treasuries for the rest of eternity.
Got to love our stupid tax code at work - creating inefficiencies the world over
I have mod points and I am not afraid to use them
> So, Microsoft is going to go $90 Billion in debt just so it can avoid paying $38 Billion in taxes.
To pay the costs in cash, they need to use $140B. They bring $140B to the US, pay $50 billion in taxes, and have $90 billion left to pay the expense. If that $140B is earning them 6% overseas, that's $8.4 billion in lost income each year, plus losing the liquidity of having cash.
By borrowing, they pay $2 billion in interest and still have their cash for 40 more years.
Bottom line:
Since it costs $50 billion in taxes to bring the money to the US, it's much cheaper to leave the money elsewhere and use debt in the US.
That *is* an issue, the current structure encourages keeping money outside of the US. Sometimes they use that money to build factories or other facilities outside of the US.
Between the repatriation tax and the double taxation of dividends (resulting in a 59% total tax rate), there is strong incentive to never return the money to US investors (retirement savers) in the form of dividends. Instead, the US investors become stockholders in an ever-growing European company. It has to keep growing, because paying dividends to your 401k instead triggers the 59% tax.
Most countries don't have this silly tax code because it does encourage silly behavior, trying to grow into industries completely outside their core competency rather than returning profit to your 401k. Companies do look for opportunities to bring money back. For example, while campaigning, candidate Trump said he'd try to change the rules to avoid punishing companies for bringing money to the US. If he and the Republicans manage to do that even forna short time, we should see a quick influx of cash as companies take advantage of the opportunity before it's changed again. That's happened before, a short window of lower rates.
As far as the bonds, they have time to wait - Microsoft just issued bonds due FORTY YEARS from now. In forty years, when these bonds are due, they can pay them by issuing another set of 40-year bonds. Some time in the next 80 years tax rates will be lower.
> do MS plan to go into enormous debt in the US while having an even more enormous sum sitting in a Irish bank?
Why not? If they issue bonds in the US paying 3% and they buy bonds in Ireland that pay them 3%, their cost in zero. (Other than currency risk.) It's not like credit-card debt, their interest cost is about equal to what they earn on the cash they'd otherwise spend, for a net cost of zero.
We CAN borrow endlessly.
No we cannot. Sooner or later the credit worthiness of the country will come into question and the cost of borrowing will rise beyond what is manageable. Eventually the interest payments swamp all other spending and the government no longer has money to function. Eventually inflation takes over and the economy goes into the shitter in a very bad way.
Sovereign national debt is not like individual debt
Nobody is claiming that it is. But that doesn't mean we can borrow endlessly and never pay any of it back. Debt isn't magically different just because a country is doing the borrowing. Countries routinely get themselves in dire financial straights when it becomes clear they cannot repay their debts or even the interest on their debts.
We have been running deficits for nearly a century, with just a few blips.
Prior to 1980 we were running MANAGEABLE deficits as a percent of GDP. That is fine - borrowing is actually very useful to a government and all major economies do it. After 1980 we have been dealing with this absurd fiction that lowering taxes will result in enough economic growth to cover the borrowing and then some despite there not being a spec of actual evidence of this working in the real world. Owing more money than your GDP is not a good or necessary situation to be in. Not even for the mighty USA.