A Microsoft bond sale aimed at raising at least $25 billion has attracted more than $115 billion in orders from investors, Bloomberg reported on Thursday. The debt offering in the United States, Microsoft’s first major domestic issue since 2017, will help fund soaring infrastructure spending driven by artificial intelligence.
Key points
- Microsoft received over $115 billion of bids for a US debt offering expected to raise at least $25 billion.
- The bond issue is split into up to 10 tranches with maturities running between two and 40 years.
- The company’s quarterly capital expenditure reached $45.2 billion as free cash flow dropped 27 percent.
- Five leading tech companies have doubled their total debt to roughly $350 billion over five years.
Structure of the jumbo debt offering
The transaction marks Microsoft’s first high-grade debt sale in the United States in almost a decade. People familiar with the matter told Bloomberg that peak demand reached more than $115 billion, ranking the deal among the largest order books on record for a corporate borrower.
The sale is structured across as many as 10 tranches, with debt maturities extending from two years to 40 years. Wells Fargo, JPMorgan Chase and UBS are acting as lead managers for the placement, with the final total depending on market demand at pricing.
Microsoft rarely approaches bond markets for large capital injections. Its previous major US debt offering occurred in January 2017, when it raised $17 billion to help pay for its acquisition of LinkedIn.
Rising costs of artificial intelligence infrastructure
The scale of capital required to construct and equip data centres for machine learning has altered Microsoft’s balance sheet needs. A day before the bond sale emerged, the company reported that its quarterly capital expenditure, including equipment leases, had climbed to $45.2 billion in the three months ending September.
Heavy outlays on servers and facilities have compressed the company’s cash generation. Free cash flow fell 27 percent during the quarter to $18.6 billion, even as overall software and services revenues expanded.
Demand for capacity continues to exceed Microsoft’s deployment pace. Revenue from the Azure cloud division grew 48 percent to $33.2 billion during the quarter, with management guiding for revenue growth of 49 percent to 50 percent in the three months ending in December.
Amy Hood, Microsoft’s chief financial officer, told analysts that Azure’s capacity constraints remain the primary limit on near-term growth, stating that “we still have demand that exceeds supply.”
Debt levels climb across the tech sector
Microsoft is not the only technology firm borrowing large sums to support computing networks. Alphabet completed a $25 billion bond issue across 10 tranches in August, with similar long-dated repayment horizons, and told investors it intends to issue bonds in the US twice a year.
Tech giants are increasingly leaning on institutional bond markets rather than self-funding entirely from operating cash. Combined debt across Alphabet, Amazon, Meta, Microsoft and Oracle has doubled over the past five years to approximately $350 billion.
Creditors have treated these borrowings with varying degrees of enthusiasm. Amazon raised $25 billion in debt earlier this year, but its offering met lukewarm interest, while credit rating agency S&P recently lowered Oracle’s credit rating to one step above speculative grade as its debt burden increased.
The advantage of top-tier credit ratings
Microsoft occupies a rare position in credit markets. Alongside healthcare company Johnson & Johnson, Microsoft is one of only two US corporate issuers holding a top-tier AAA credit rating from major agencies.
The company’s rating sits above the sovereign credit rating of the US federal government. That status enables Microsoft to secure tight borrowing spreads and issue debt at lower interest rates than its rivals.
Despite strong credit standing, the deal demonstrates that the computational demands of large-scale models are forcing even the wealthiest technology firms to tap outside financing. Microsoft and its underwriters will determine the final sizing and yield spreads as orders close.
