Microsoft Corp. is paying higher yields on new bonds than in aNovember sale after it beat the planned return of Apple Inc. to thecredit market after an absence of almost two decades.

The company, one of four U.S.-based businesses with the highestratings from Moody's Investors Service and Standard & Poor's,issued $1.95 billion of dollar-denominated debt last week with aweighted average coupon of 2.41 percent, exceeding the 2.33 percentfor similar bonds it sold five months earlier even with interestrates at about the same level. The latest sale came two days afterApple said it would use debt to help fund a $55 billion addition toa plan to return cash to shareholders.

“Microsoft paid a little more than they otherwise would, giventhe looming Apple issuance,” said Noel Hebert, the chief investmentofficer at Concannon Wealth Management, which oversees about $250million of assets from Bethlehem, Pennsylvania. “The higher couponsare likely a fair trade to get in front of the new Apple paper,which will have to get digested.”

While the world's largest software maker has a higher creditrating than Apple, growth at the Redmond, Washington-based companyhas stagnated for more than a decade. After generating enough freecash flow in 1999 to buy Apple twice over, Microsoft's $27.5billion of funds earned in the last 12 months now accounts forabout 60 percent of the amount produced by its Cupertino,California-based competitor.

Even as European investors simultaneously awarded the Windows 8designer an unprecedented 2.625 percent 20-year coupon on its firstever euro-denominated debt, it cost Microsoft more to place dollarnotes with buyers who are expecting potential Apple issuancethrough 2015 to be more than 25 percent of outstanding U.S.investment-grade technology bonds.

Tony Imperati, a Microsoft spokesman, declined to comment onwhether Apple influenced the timing of Microsoft's debt offering.Steve Dowling of Apple declined to comment on a potential bond saleby the iPhone maker, which last sold convertible debt in 1996 andstraight bonds in 1994.

The Windows maker “wanted to front-run them so they didn'toverpay after Apple once all the accounts got filled,” NikhillPatel, an analyst at San Antonio-based Frost Investment AdvisorsLLC, which oversees $9 billion, said in a telephone interview.“With $55 billion in total issuance over three years, from a highlyrated and highly regarded technology company such as Apple, it's alot for the market to stomach.”

Higher Coupons

Microsoft sold $450 million of 1 percent, five-year bonds, $1billion of 2.375 percent debt due 2023 and $500 million of 30-yearsecurities with a coupon of 3.75 percent, according to datacompiled by Bloomberg. Those notes had higher coupons and widerspreads that those linked to similar portions of bonds the companyissued Nov. 2.

The 10-year debt that Microsoft sold in November was sold with a2.125 percent coupon at a 47 basis-point spread, while thecorresponding maturity in last week's sale was priced at a relativeyield of 70 basis points. A basis point is 0.01 percentagepoint.

Yields on 10-year U.S. Treasuries were 1.71 percent on April 25,when the new bonds were sold, compared with 1.72 percent on Nov. 2,the date of the previous issue. Yields on investment-grade bondsfell to 2.69 percent from 2.77 percent over that span, according tothe Bank of America Merrill Lynch U.S. Corporate Index.

Microsoft also raised 550 million euros ($716 million) in itslatest sale, an offering for which demand from European moneymanagers, insurance companies and pension funds reached 7 billioneuros.

“It has the benefit of being a scarce credit in quite a wideuniverse,” said Craig Veysey, the head of fixed income at SanlamPrivate Investments Ltd. in London, part of the Sanlam Group, whichoversees $72 billion of assets. “The U.S. dollar issuance fromMicrosoft didn't have the same scarcity value as the eurotranche.”

Apple is poised to exploit scarcity value as it prepares tofinance part of a $100 billion shareholder reward package withdebt. Nike Inc., which before last week hadn't sold new bonds since2003, raised $1 billion with 10- and 30-year securities on April 23that pay less that Microsoft even though the sporting- goodscompany is ranked four levels lower, with an A1 grade from Moody'sand A+ at S&P.

Apple Offerings

With Microsoft, “people can probably get a pretty decent filland may already have enough exposure,” Lon Erickson, a Santa Fe,New Mexico-based money manager at Thornburg Investment ManagementInc. who oversees about $6 billion of taxable fixed- income assets,said in a telephone interview. “They don't necessarily need to gointo the market full force like they would with something like Nikeor, clearly, Apple.”

Microsoft's sale may precede a series of Apple offerings thatCreditSights Inc. estimates could be between $15 billion and $20billion annually over the next three years. Using bonds to financethe additional cash Apple plans to use to enrich shareholdersstands to swell the $187 billion market for U.S. investment-gradetechnology debt by about 30 percent, Bloomberg data show. Apple israted Aa1 at Moody's and AA+ by S&P.

“Presumably the same investors that are going to play in theMicrosoft deal are going to play in Apple, and diversity is alwaysbetter,” said Jody Lurie, a corporate credit analyst at JanneyMontgomery Scott LLC in Philadelphia.

While Apple's 41 percent stock plunge from its September highreflects investor concern that the company's pace of sales growthis slowing amid accelerating competition in mobile devices fromSamsung Electronics Co., Microsoft is contending with its ownchallenges.

The company reported no growth in Windows sales in its latestquarter, after accounting for upgrades sold in the past, and isstruggling to end its reliance on traditional computing asconsumers and businesses flock to mobile devices. Its bond pricesimply a rating of A1, data from Moody's Analytics show.

Cost controls and sales of business and server software havehelped boost profit beyond analyst estimates and blunt the impactof plummeting personal computer shipments amid weak demand forMicrosoft's newest operating system. While last week's offeringcost more than Microsoft's previous sale, its average coupon wasstill below the average 2.95 percent for its $16.9 billion of bondsoutstanding, Bloomberg data show.

“They may have had to pay up for it a little bit in order toentice people to come into this in addition to waiting to buyApple,” Thornburg's Erickson said. “At the same time, it's quitecheap money.”

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