| NEW YORK
NEW YORK Standard & Poor's and Moody's Investors Service on Monday assigned their top credit ratings to Microsoft Corp (MSFT.O) after the company unveiled plans to tap the debt market with its first issue of commercial paper.
S&P said it is the first 'AAA' rating it has assigned in 10 years to a U.S. corporate issuer. Only five U.S. nonfinancial issuers currently hold triple-A ratings from S&P, compared with about 30 in the early 1980s, reflecting an overall deterioration in credit quality in corporate America.
Top investment-grade ratings from credit agencies typically mean a borrower has lower borrowing costs than others further down the scale.
More than 70 percent of S&P ratings for U.S. nonfinancial companies are currently below investment grade and classified as "junk", or speculative-grade bonds. That's up from 32 percent in 1980.
"Assigning a 'AAA' rating to Microsoft is a rare development in U.S. credit history and represents an unusual combination of qualities that are shared by few others companies," S&P analyst Nicholas Riccio said in a statement.
The top investment-grade rating came after the company unveiled a $2 billion commercial paper program.
As Microsoft's strengths, S&P cited factors including the size and scope of its business, its dominant competitive position and strong growth outlook.
"Microsoft has also maintained a level of financial conservatism that reflects very limited credit risk," S&P analyst Nicholas Riccio said in a statement.
Moody's said it has assigned a senior unsecured rating of 'Aaa' and a short-term rating for commercial paper of 'Prime-1' to Microsoft. Microsoft carried an issuer rating from Moody's from 1999 to 2004. The company had an 'Aa2' rating, or third-highest investment grade, when it was withdrawn in September, 2004.
The new ratings are backed by more than $22 billion in operating profit and over $14 billion of free cash flow for the fiscal year to June, Moody's said in a statement.
"Microsoft derives additional credit strength from the 'stickiness" of its installed base that contributes to long product cycles in terms of both development and adoption, which is supported by a recurring revenue stream that approximates 30 percent of total revenue," said Moody's analyst Richard Lane.
"As a result, the company is well positioned to address the general challenges related to technology evolution and substitution."
The company's $2 billion commercial paper program will be supported by $2 billion of committed revolving credit facilities, "reflecting financial conservatism that is consistent with the highest credit rating," he said.
Microsoft said earlier its board has authorized it to tap the debt market from time to time for up $6 billion in funds. As part of that approval, the company has established the $2 billion commercial paper program.
The company will use net proceeds from any financings for general corporate purposes, including funding for working capital and share buybacks.
The company made the announcement as it unveiled a fresh share buyback program of up to $40 billion and said it is raising its quarterly dividend to 13 cents a share from 11 cents a share.
(Editing by Walker Simon)