UPDATE 2-Microsoft sells $2.25 bln of debt at low rates
* Bonds price close to record low levels
* Debt sale oversubscribed with $6 bln interest
* Shares down as Nasdaq rises (Adds SEATTLE to dateline, rewrites, adds background)
By Tim Sifert and Bill Rigby
NEW YORK/SEATTLE, Feb 3 (Reuters) - Microsoft Corp (MSFT.O) on Thursday sold $2.25 billion of bonds at close to record low borrowing levels as it looks for cheap ways of raising cash to fund its share buybacks and dividend payouts.
The world's largest software company, making its third trip to the US corporate bond market in two years, has $41 billion in cash and short-term investments on its balance sheet, but likes to borrow as the most of that cash is locked up overseas.
The proceeds of the debt sale are for general corporate purposes, including working capital, expenditures, stock buybacks, acquisitions and dividends, according to the company's regulatory filing.
With a stagnant stock price over the past 10 years, Microsoft likes to reward shareholders, spending more than $170 billion on dividends and share repurchases in that time.
In its latest offering, Microsoft sold $750 million of five-year notes at a yield spread of 38 basis points over comparable Treasuries, close to a record low, according to syndicate sources.
The second tranche comprised $500 million of 10-year notes, at 48 basis points over Treasuries and the third tranche was $1 billion of 30-year bonds at 68 basis points over Treasuries.
That makes it one of the more tightly priced bonds this year, but the slight payout did not deter investors, which have flooded the bond market this year looking to diversify out of financials, snapping up recent debt from Anheuser-Busch InBev Worldwide (BUD.N) and Kimberly-Clark Corp (KMB.N).
Microsoft's debt offering was massively oversubscribed, with $6 billion of orders placed, according to market sources.
The company's shares fell less than 1 percent as the tech-heavy Nasdaq rose slightly.
With AAA ratings from Standard & Poor's and Moody's, Microsoft is one of the strongest U.S. companies, with its $41 billion cash pile and a mere $8.5 billion in outstanding senior unsecured debt.
The majority of that cash is held overseas -- as most of Microsoft's revenue comes from outside the United States -- so the company likes to raise cash from bond investors rather than pay high tax rates to repatriate cash.
With a stock trading at the same level as 10 years ago, Microsoft is a major buyer of its own shares, repurchasing $5 billion worth alone in the last quarter, out of a $40 billion repurchase program that expires in 2013.
Last September, the company hiked its quarterly dividend 23 percent to 16 cents per share, declaring $1.3 billion in dividends in the last quarter.
Microsoft only started paying a dividend in 2003, and surprised the market with a special dividend of $3 per share the year after, dispersing more than $30 billion to investors in one go.
Microsoft generally makes dozens of small acquisitions per year, but has not made a large deal since its $6 billion purchase of web ad firm aQuantive in 2007, which was not a success.
Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC, Morgan Stanley and RBS are lead managers on the sale.
Last week Microsoft reported record quarterly revenue of $19.95 billion and net profit of $6.63 billion, boosted by strong sales of its Windows operating system and its new Kinect hands-free gaming system.
(Reporting by IFR reporter Timothy Sifert in New York and Reuters reporter Bill Rigby in Seattle)
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