Microsoft's $25 Billion Bond Deal Signals AI Dominance
Microsoft Corp.'s massive $25 billion bond sale received a warm welcome. This doesn’t imply that investors will be as receptive when the next major tech borrower appears.
The software titan, recognized as one of the top AI hyperscalers, attracted over four times the demand for its 10-part debt offering on Thursday. These enabled underwriters spearheaded by Wells Fargo & Co., JPMorgan Chase & Co., and UBS Group AG to reduce the additional yield Microsoft needs to offer on the bonds compared to benchmark Treasuries.
The issuance ended a nearly three-month lull in bond sales from Big Tech hyperscalers, and it proceeded without any hitches. However, it doesn't automatically indicate a complete resolution of the recent market concerns regarding AI expenditures and profitability that triggered losses on riskier tech debt, and drove the cost of safeguarding Broadcom Inc. and SpaceX debt against default to unprecedented levels.
This is due to the fact that Microsoft differs from its competitors regarding its credit condition and debt structure. Prior to Thursday, it had not accessed the US investment-grade market since 2017, when it secured $17 billion.
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It also holds the distinction of being the sole publicly traded US company, apart from Johnson & Johnson, with top AAA ratings from both Moody's Ratings and S&P Global Ratings.
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“The credit markets are handling much of the burden in determining winners and losers at this stage,” remarked Jack Janasiewicz, multi-asset portfolio manager and chief portfolio strategist at Natixis Investment Managers Solutions. “The market is available for new issuances, but not for everyone.”
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Microsoft's deal drew $115 billion in orders at its highest point, equating to 4.6 times the size of the offering, as per sources familiar with the situation. This positions it as one of the most desired US corporate bond offerings ever, based on information gathered by Bloomberg. Maturities vary from two to 40 years.