Microsoft Said to Plan Debt Sale to Pay for Dividends, Buybacks
Microsoft Corp. is planning to sell debt this year to pay for dividends and share repurchases because too much of its cash is held overseas, according to a person familiar with the matter. — The company would try to raise …
Context & Ripple Effects
Microsoft has been returning cash to shareholders for years on the strength of its domestic balance sheet — most recently with the quarterly dividend the board declared in June 2009 alongside a shareholder-rights proposal. What Bloomberg now reports, via a person familiar with the matter, is different: the company would tap the bond market for the first time to keep that program running.
The stated reason is the offshore-cash trap — too much of Microsoft's money sits outside the US, where bringing it home would trigger tax costs. A company that built its fortress balance sheet without borrowing would start carrying debt not out of need but because of where its earnings are booked. The report remains unconfirmed by the company.
First-order effects
- Microsoft would become a new bond issuer despite holding enormous cash reserves, giving fixed-income investors direct exposure to its credit while leaving its offshore holdings untouched.
- The dividend and buyback commitments made under the 2009 declaration get funded without paying repatriation taxes on foreign earnings.
Second-order effects
- Other cash-heavy US technology companies facing the same geography-of-earnings problem would have a template: borrow domestically for shareholder returns rather than move foreign profits home.
- Bond-market supply of large-cap tech credit expands, forcing investors to price a new class of issuer whose debt exists purely as a tax-arbitrage instrument rather than a funding necessity.
Third-order effects
- If the pattern holds, US tax treatment of offshore earnings structurally decouples capital structure from operations — the most profitable American companies accumulate both record cash abroad and growing domestic debt simultaneously, an inversion of what leverage traditionally signals about a business.
The trend: Cash-rich US multinationals are beginning to borrow at home to fund shareholder returns rather than repatriate foreign earnings trapped by tax costs.