Microsoft draws $115B in orders for $25B bond sale

Microsoft ↗ 6.68% priced a $25 billion bond sale on Thursday afternoon, its first US investment-grade offering since 2017. Peak orders reached $115 billion, or 4.6 times the size of the deal, Bloomberg reported, which makes it one of the most heavily subscribed US corporate bond sales on record.news.bloomberglaw.com

The sale puts the last major holdout among the big data-center builders into the debt markets that rivals have used to pay for the AI buildout. Alphabet ↗ 3.25%, Amazon Amazon.com, Inc. ↗ 6.12%, Meta Platforms ↗ 1.44% and Oracle ↘ 1.95% had all borrowed through bonds earlier this year, according to Barron's.barrons.com

Deal structure

The debt was split into 10 tranches with maturities from two to 40 years, Reuters reported, citing Bloomberg. Wells Fargo ↗ 2.22%, JPMorgan Chase ↗ 4.18% and UBS ↗ 5.56% managed the sale. Two tranches carry floating rates and eight are fixed-rate. Initial price talk ranged from 50 to 55 basis points over Treasuries on the two-year notes to 130 to 135 basis points on the bonds due in 2066, Investing.com reported. The notes are expected to be rated Aaa/AAA and to settle on Nov. 4. The final terms were set on Thursday afternoon, according to The Wall Street Journal News Corp ↗ 4.15%.reuters.com+2

According to a preliminary prospectus supplement, the proceeds will go to general corporate purposes, including capital expenditures, and the notes are senior unsecured obligations, MT Newswires reported. Microsoft declined to confirm the size of the deal or the demand figures to Barron's.fidelity.com+1

Why investors lined up

The sale came one day after earnings. Microsoft said spending on data centers and equipment, including leases, reached $45.2 billion in the September quarter, while free cash flow fell 27% to $18.6 billion, The Next Web reported. Even so, Barron's noted that it was the only one of the five main hyperscalers with positive free cash flow last quarter. It is also one of just two publicly traded US companies with a AAA rating.thenextweb.com+1

The deal follows a selloff in tech-company debt, including bonds from CoreWeave ↘ 9.90%, MarketWatch reported. It is the first highly rated hyperscaler bond deal since August. "Everything is the haves and have-nots," said Byron Anderson of Laffer Tengler Investments. Tigress Financial analyst Ivan Feinseth said investors will increasingly separate highly rated companies like Microsoft from "more leveraged infrastructure providers dependent on future demand."morningstar.com

On Wednesday's earnings call, Chief Financial Officer Amy Hood said the company would "access additional sources of funding when we believe it is attractive to do so," adding, "We feel like we have lots of options," according to Barron's.barrons.com