Microsoft seeks at least $25B in first bond sale since 2017

Microsoft ↘ 0.16% has started selling US investment-grade bonds for the first time in more than nine years. The company is aiming to raise at least $25 billion as Big Tech borrows heavily to pay for artificial intelligence infrastructure, Bloomberg reported on Thursday, October 29. The final size has not been set and could change depending on investor demand, according to people familiar with the matter.bloomberg.com

The sale comes one day after Microsoft reported strong quarterly results. It marks a change for a company that has historically paid for its operations mostly out of its own cash flow, Investing.com noted.au.investing.com

Deal Structure

The debt is being offered in as many as 10 tranches, with maturities ranging from two to 40 years, according to Bloomberg. Initial price talk on the longest note, due in 2066, is as much as 1.35 percentage points above Treasuries. The offering has eight fixed-rate tranches and two floating-rate notes, Investing.com reported. Early guidance for the two-year fixed notes is 50 to 55 basis points over Treasuries. The senior unsecured notes are expected to be rated Aaa/AAA, and settlement is scheduled for November 4.bloomberg.com+1

The proceeds are earmarked for general corporate purposes. Those include capital expenditures, working capital, share buybacks, acquisitions and repaying existing debt. JPMorgan Chase ↗ 1.26%, UBS Group ↗ 3.08% and Wells Fargo ↗ 1.36% are managing the offering, Reuters reported via Zawya. Microsoft's last high-grade bond sale was in 2017, when it raised $17 billion through seven tranches, Odaily reported, citing Bloomberg.zawya.com+1

Earnings Backdrop

Microsoft shares had been rising in premarket trading after the company's fiscal first-quarter results beat expectations. Revenue rose 19% to $92.28 billion, and Azure cloud revenue grew 48% to $33.2 billion, CNBC reported. Capital expenditures, including finance leases, came to $45.2 billion. That was 30% more than a year earlier but below analyst estimates. Chief Financial Officer Amy Hood blamed delayed deliveries of third-party capacity. Free cash flow fell 27% to $18.63 billion but stayed positive.cnbc.com

Hood said Microsoft is targeting more than $50 billion in capital spending for the fiscal second quarter, according to CNBC.cnbc.com

AI Borrowing Spree

Microsoft is one of only two publicly traded US companies with AAA ratings from both Moody's ↗ 2.42% and S&P Global ↗ 2.52%. The other is Johnson & Johnson ↗ 1.53%, Investing.com noted.au.investing.com

Investors are separating AI spenders that can fund themselves from those burning cash. Microsoft put 68% of its operating cash flow into capital spending last quarter, compared with 121.4% at Alphabet ↘ 12.29%, according to Reuters reporting carried by CP24. Alphabet shares fell sharply after its earnings report. "Some investors are no longer giving all hyperscalers a 'free pass' to spend without limit," Jeremy Saltzberg of Check Capital Management told Reuters.cp24.com+1