Cisco's $6.5B Bond Bonanza

Cisco Systems Inc. (Nasdaq: CSCO) got into a new business today -- the bond-selling business.

The company successfully sold $6.5 billion worth of investment-grade debt today, according to several financial outlets. Cisco had orginally filed to sell $5.5 billion in debt, but increased the bond offering due to strong demand, according to the lead manager on the bond issue, Citigroup . (See Cisco Issues Debt.)

The fact that the offering was boosted indicates that the financial community was hungry for the high-quality debt. Cisco's debt was rated A+ by Standard & Poor’s . "It was a strong offering," said Bruce Hyman, a credit analyst at S&P. "This is a good company and I wasn't surprised to see it oversubscribed."

Cisco officials have said they were raising money through a debt offering to pay for the acquisition of Scientific-Atlanta Inc. . (See Scientific-Atlanta: Cisco's Sweet Deal? and Cisco to Acquire Scientific-Atlanta.)

Cisco didn't necessarily need the cash, because it has more than $13 billion in cash and short-term investments on the balance sheet, according to its last filing with the SEC. But much of Cisco's cash holdings are held offshore, and bringing them back into the country would have incurred tax liabilities, say company officials.

S&P's Hyman buys that explanation, pointing out that by preserving its cash, Cisco has given itself some leeway if, for example, it wants to do more deals.

"This is company that had ample liquidity but it didn't have all that liquidity in the United States. They wanted to maintain huge financial flexibility," Hyman says.

Cisco had never sold any debt before. It's rare for profitable blue-chip technology companies to raise debt, because they typically carry lots of cash. But suddenly it seems to becoming more popular. Oracle Corp. (Nasdaq: ORCL) in early January sold $5.75 billion of its own debt to help pay for its acquistion of Siebel Systems Inc. (Nasdaq: SEBL).

Cisco's debt came in three parts. These included five-year fixed-rate notes yielding 0.70 to 0.72 percentage point more than U.S. Treasuries (the five-year treasury is currently yielding about 4.25%); and 10-year fixed-rate notes yielding about 0.95 to 0.97 percentage point more than U.S. Treasuries (The 10-year Treasury is currently yielding about 4.50%), Citigroup said on Monday. JP.MorganChase , Merrill Lynch & Co. Inc. , and Morgan Stanley are also managing the sale.

— R. Scott Raynovich, Editor in Chief, Light Reading

dBGain 12/5/2012 | 4:06:05 AM
re: Cisco's $6.5B Bond Bonanza May be hard to believe, but Cisco needs to generate EPS growth. If they dilute stock in acquisitions nowadays, they will reduce EPS. By borrowing, they can instead grow EPS. Sign of a maturing company irrespective of the 'reasons'.
materialgirl 12/5/2012 | 4:06:02 AM
re: Cisco's $6.5B Bond Bonanza Right on. I used to issue high-tech debt. It is an oddball market, but can be a very good niche. It happens usually relative to mature companies trying to finance acquisitions. The very nature of debt demands predictability, so it only works in mature, predictable markets. What these bond holders do not need is a new technology to come in during the next year or two that tanks CSCO's profits, like AMD is doing to INTC.
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