What happens when one of the strongest corporate balance sheets decides to enter the public debt markets in a big way just as those markets are crashing? If you're Microsoft, you hit a home run.

The company was able to cash in on the flight to quality and launch its first commercial paper program at $2 billion in September 2008, then increase the program to $3 billion, raising short-term funds at a cost that has been running below 20 basis points, virtually matching the U.S. government's rates. The Redmond, Wash., software giant also issued $3.75 billion of five- and 10-year notes and 30-year bonds in May 2009 at an average pretax cost of 3.7%. The first step was convincing the board that the company should restructure its balance sheet and take on significant debt for the first time in its 34-year history, as well as retire stock through a $40 billion buyback program. The second step was getting the rating agencies to confirm that Microsoft, even though it swam in the turbulent technology waters, was in fact a gilt-edged credit. It took a lot of communication with Moody's and Standard & Poor's, reports treasurer George Zinn, but the long-term ratings came in at AAA and Aaa, the short-term at A1+ and P1, making Microsoft one of just four industrial companies to sit on that lofty perch. "We beat our pricing benchmarks because there was tremendous demand for longer-dated [commercial paper] of our quality and so few issuers," Zinn says. The greatest challenge in launching the commercial paper program was not Microsoft's credit quality but "the scarcity of bank balance sheets" to provide backup lines, notes Anita Prasad, general manager for treasury. But treasury worked patiently with its banks until it got the backup at traditional prices, rather than panic prices. By flying into the storm, Microsoft opportunistically restructured its balance sheet, lowered its overall cost of capital and positioned itself to complete any future big acquisition with debt financing at attractive rates, Zinn points out.

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