Fitch puts Microsoft on watch

Fitch Ratings said it placed the AA+ issuer default rating of Microsoft Corp. on Rating Watch negative following news that it will buy LinkedIn Corp. for $26.2 billion.

Fitch also said it affirmed the short-term ratings at F1+.

The action affects $56.4 billion of total debt, including an undrawn $10 billion revolving credit facility, the agency said.

The negative watch reflects an expectation for structurally higher leverage, given Microsoft's intention to fund the LinkedIn acquisition primarily with new debt, Fitch said.

The agency also said it estimates supplemental adjusted net leverage, which offsets debt with a portion of Microsoft's $106 billion of offshore cash, will approach 1.5x pro forma for the deal.

The agency said it expects Microsoft to continue borrowing to fund shareholder returns, given the majority of Microsoft's free cash flow is outside of the United States.

Fitch said it expects to resolve the Rating Watch negative upon greater clarity on the ultimate amount of debt issued to fund the LinkedIn transaction and expectations for debt-financed shareholder returns beyond the near term.

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