Microsoft plans $25 billion through bond sale, interest rates go up to 6.35%: What to know

Microsoft is planning to raise $25,000,000,000 through a bond sale. In a prospectus supplement filed with the US Securities and Exchange Commission (SEC) on 2 November, Microsoft detailed the terms of the bond offering, including the amount it plans to raise across different maturities, interest rates and how it intends to use the proceeds. The company priced the bond offering on 29 October, with the transaction expected to close on 4 November.

Reportedly, Microsoft last sold its high-grade debt in 2017, raising 17 billion. It’s also the only publicly traded US firm besides Johnson & Johnson with top-tier AAA ratings from Moody’s Ratings and S&P Global Ratings, according to Bloomberg. The timing is hard to miss.

It may be recalled, days ago Microsoft extended voluntary exit offers to 60,000 employees across 4 countries including India. The buyout offer was much similar to a standard severance arrangement, including one month's base salary for every completed year of service, along with health insurance and career transition services. What to know about the bond offeringSimply put, the tech giant is borrowing $25 billion from investors by issuing bonds.

Investors will lend Microsoft money and, in return, earn interest on it. These bonds have maturities ranging from 2028 to 2066. Microsoft is issuing 10 tranches of bonds with different interest and maturity dates.

Of this $25 billion, the company plans to raise $6 billion through the floating-rate bonds and $19 billion through fixed-rate bonds. The longest-maturity bonds will be repaid in 2066, giving Microsoft a 40-year borrowing horizon. Here's a look:How the proceeds will be used?

The company says it intends to use the net proceeds from the offering for general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, repurchases of capital stock, acquisitions, and repayment of existing debt. The company has not explicitly allocated any portion of the $25 billion for artificial intelligence (AI) investments or data centre expansion. However, the regulatory filing notes that AI and cloud infrastructure remain important investment priorities for Microsoft.

In the prospectus, the company identifies building global-scale cloud and AI infrastructure as part of its long-term business ambitions. It's also worth mentioning that while company's revenue increased 18% its cost of revenue rose 21%, driven by growth in Microsoft Cloud. The gross margin percentage of Microsoft Cloud declined to 66%, reflecting continued investments in AI infrastructure and growing usage of AI products.

The company's annual report also showed that operating expenses increased by $4.9 billion, or 7%, driven by continued investments in research and development, computing capacity, AI talent and data centres. How it could impact company's debt?A key disclosure in the filing reveals that bond sale may potentially increase the company's debt by over 70% or $24.87 billion. The regulatory filing reveals Microsoft's capital structure as of 30 September 2026 and how it would look after the proposed $25 billion bond sale.

The calculation includes the new debt but does not account for how the company will spend the money raised.