Debentures (or company bonds) are very much back in fashion and the recent use of debt finance by Microsoft to pay for its takeover of LinkedIn is a good example of why.

Microsoft has raised around $20bn of new debt finance by issuing a new series of corporate bonds. As the video below explains, the demand from investors for these bonds was very strong; if it wanted to Microsoft could have raised around $50bn of new debt finance.

Why? Microsoft, like other high profile and highly profitable companies, is seen as a safe bet. The bonds, which can be traded on the open market, offer a decent yield (rate of interest) which is exactly what financial institutions such as pension schemes are looking for right now.

Does this create a gearing problem for Microsoft? No. The business still has enormous cash reserves and is easily able to finance the interest on the bonds.