Bondholders are giving Cisco Systems Inc. a free pass on itsplan to reward shareholders with half its free cash flow this yearas the biggest maker of computer-networking equipment cuts pricesand jobs to increase profit.

Cisco's bonds are trading at levels that imply it should berated Aa2, according to Moody's Corp.'s capital markets researchgroup, two levels above its actual rating of A1. Cisco'sfourth-quarter results beat analysts' estimates, and executivessaid this week that the company will raise its dividend 75 percentas part of a plan to reward shareholders with at least half thecash generated from operations.

The firm's stock reversed a 4 percent 2012 decline to a 5.2percent gain on the news. Bondholders of San Jose, California-based Cisco may not mind the shareholder largesse because of thefirm's “relatively strong balance sheet,” according to moneymanager Bonnie Baha of Los Angeles-based DoubleLine Capital LP.

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