Fins 5512 Microsoft Yield to Maturity

From my opinion, out of all the ways to raise funds, senior unsecured notes carries the most risk for investor as these unsecured notes are not backed by any collateral and is similar to debentures with higher rate of return but without creditworthiness. I think that for a company to issue an unsecured notes, they must have strong reputation in the market for investors to take the risk and buy these notes. For instance, Microsoft issued senior unsecured notes in 2010 which is right after the GFC. As shown in Table 1, the yield for maturity for each series for 3, 5, 10 and 30 years are 1,77%, 3,31%, 6.2% and 9.46% which I think is relatively low compared to Coca-Cola Enterprise which have 11.97% and 13.67% for its 2 and 5 years senior unsecured notes as shown in Table 2. However, Microsoft has better credit rating which is AAA according to S&P while Coca-Cola Enterprise only has A3 and this indirectly implies the risk of the senior unsecured notes being issued. Furthermore, technology based company often has better growth compare to other types of company and Microsoft ranked 36th in the World 500 fortune company back in 2010. Therefore for risk averse investor will seek investment in more reliable company such as Microsoft even though the rate of return is lower. On the other hand, IBM issued a Floating Rates Notes (FRN) which 3 months LIBOR reset quarterly plus 0.03% that matures in 2 years. I think IBM issued FRN because after the GFC, they might think that investors aimed to receive their return in investment in a shorter period of time. In order to avoid direct competition with other companies such as Microsoft and Coca-Cola who issued senior unsecured notes, IBM issued FRN that pays investors periodically at different interest rates. I think that IBM and Microsoft used different method to raise fund in order to avoid direct competition as they are both technology company. Hence they are competing the pros and cons of the notes they issued rather than their brand.

...