Microsoft Sells $17 Billion in Second Bond Deal in Six Months (bloomberg.com) 56
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.
Embrace, Extend, Extinguish (Score:1)
I'm sure swishdat will tell me how presently!
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It depends on your investment goals. If you are investing for the long run (many decades), stocks have historically been better than bonds. If you need reliable, steady income, then bonds are better.
For companies, bonds are a better way to raise capital, because dividends are paid to stockholders with after-tax income, while bond interest is deductible. So it makes sense for Microsoft to borrow money by selling bonds, and then use the proceeds to pay for stock buy-backs, shifting their capital base from
Big Fucking Deal (Score:2, Insightful)
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.
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Re:Big Fucking Deal (Score:5, Interesting)
"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 [cnbc.com], 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.
Re:Big Fucking Deal (Score:4, Interesting)
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.
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Perhaps the market is expecting the low-yield regime to last that long... no major expansions or growth opportunities in sight---unless something really great comes along (e.g. fusion power, self driving cars, automation, etc.,) the next 40 years will be pretty much like the last decade as far as growth is concerned.
Maybe. The rate is determined by supply and demand. There is surplus savings sloshing around the market right now. Pension and banking regulations, surplus savings from Asia, demographic imbalances. etc.
Even if there is a great leap forward this may not solve the imbalance. Take self driving cars. We could see a huge fleet of personally owned cars replaced by a smaller fleet of self driving taxis. Car production could fall by 70% in 20 years. So less investments would be needed. Most of the technological a
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Blacksmithing, wood working, sailing ships, etc. didn't really see any huge revolutions for a couple thousand years.
Perhaps we're entering a new "middle age" until we figure out something revolutionary like fusion or regenerative therapies or a space elevator or something.
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We are wandering a bit off topic, but... It is not a Middle Age thing. For most of history the best guess is that investments have returned around 1 to 2%. It may not even be a stagnation thing. Remember that returns are set by supply and demand. One could have a high growth rate and a high savings rate which would result in a low return on investments. A good example here would be the 19th century Europe. High wealth inequities probably pushed down investment returns here.
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Re:what's this about? (Score:4, Interesting)
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?
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the interest is tax deductible
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they will pay back the debt with future revenues. can't get tax money back
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Got to love our stupid tax code at work - creating inefficiencies the world over
$90B in cash PLUS $50B in taxes (Score:5, Informative)
> 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.
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All taxes are actually felt by the individuals of a country!
Re:$90B in cash PLUS $50B in taxes (Score:4, Interesting)
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.
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Opportunities arise occasionally. 40-year bonds (Score:3)
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 payin
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Long term debt (Score:5, Funny)
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)
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Huh? The US maintained large standing armies in Europe and the Far East, maintained and even expanded its military assets, not to mention a lot of domestic programs. It did this with debt. In fact, the US has pretty much had a continuous debt since at least the Civil War.
Re: Long term debt (Score:2)
The UK has been in debt ever since the Napoleonic Wars, which is over 200 years now. Unfortunately the idiot Gideon Osborne redeemed all the Consol bonds (they where perpetual) including the 2.5% ones because he could get lower rates on 10 year bonds at the time. Short sighted twat that he was.
Choices (Score:2)
It did this with debt. In fact, the US has pretty much had a continuous debt since at least the Civil War.
The US has only had a surplus once in its history during the Andrew Jackson's administration in the 1830s. The last time the budget was balanced was during the Clinton administration. But that misses the point. A little bit of debt is not only fine it is quite useful. But we've gone well beyond just a little debt and for no practical reason other than ideological infighting and selfishness.
Prior to the Reagan administration debt as a percent of GDP had been falling steadily [zfacts.com] for decades. Since then the
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https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo3.htm [treasurydirect.gov]
Perhaps you mean the US had no net debt during Andrew Jackson's administration.
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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.
Nope. The US engaged in "Financial Repression" during the 1950s. Financial repression is when inflation is higher than the yield on a 10 year government bond. IIRC, the 10 years were selling around 2% while inflation was at 4%. 2 take away from this. First, you don't need double digit inflation. Second, the US was able to pull this off in the 1950s because investors had lived through the Great Depression and were very risk adverse. Not sure if the US could pull this off again.
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> The US had greater debt obligations as a % of GDP at the end of WWII and dealt with them without printing money.
Only because they knew they had income from war-torn countries like the UK paying them back for the next 50 years from programs like Lend-Lease.
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They just raised taxes and lowered spending to an appropriate level
No they didn't. The US continued to run deficits, and the debt continued to grow. The WW2 debt was never paid off. It was just rolled over into new debt. US National Debt by Year [treasurydirect.gov]
rather than pretending that we can borrow endlessly
We CAN borrow endlessly. Sovereign national debt is not like individual debt. There is no reason that it ever needs to be paid. We have been running deficits for nearly a century, with just a few blips. The only serious effort to balance the budget resulted in the Great Depression. Debt hawks claim that debt will lead to a
False ideas about borrowing (Score:3)
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 co
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There is widespread disagreement about the causes of the Great Depression, but this is the first time I've seen your preposterous claim. Clues are available in the fact that the Great Depression was a US phenomenon, whereas there was only a normal recession with a normal recovery in Europe and elsewhere. That means the US was doing something wrong after the 1929 stock market crash and the subsequent partial recovery The wrong thi
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Most federal government spending falls into 3 categories: breaking things (military), paying people not to be economically productive (social programs), and making production difficult or impossible (enforcement of regulations).
Cutting any of those 3 strengthens the economy, and it is the production of goods and services, not money, that is the foundation of our ability to pay our debts.
Careless cutting of military spending results in being conquered, which is not a good thing. Severe cutting of federal gov
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He was hardly going to fuck over Peter Thiel. But yes, one must give credit where credit is due.
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Oh yes, tell the public he's keeping the LGBTQ EO to collect the warm fuzzies, and then nominate a supreme court moron who will just as gladly vote to take them away when those nice Christian fundamentalists find the right suit to fuck them over...in the name of Christ.
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I think it highly improbable that Obergefell v Hodges is going to be overturned. In fact, even with a court likely to be stacked with Scalia-like conservatives, I have my doubts that Roe v Wade is going to get chucked.
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Roe v. Wade has already been partially overturned by Planned Parenthood v. Casey. In any case, the whole issue has been built on a rotten foundation, considering such issues as a "right to privacy" (it isn't obvious that you're pregnant?) and the interests of the state (The state has no right to butt into this most personal of issues, and no possible valid claim to potential future humans. )
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Roe v. Wade needs to be thrown out in entirety and an almost the same result built on rational grounds.