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Rating Action: Moody's assigns Aaa rating to Microsoft's new notes; outlook stableGlobal Credit Research - 16 Feb 2021New York, February 16, 2021 -- Moody's Investors Service ("Moody's") today assigned a Aaa rating to Microsoft Corporation's new senior unsecured notes in 31 and 41 year tranches. Microsoft will not receive any cash proceeds from the issuance of the new notes in the exchange offers whereby existing notes that are surrendered in exchange for the new notes will be retired and cancelled and cannot be reissued. The outlook is unchanged at stable. Ratings Assigned: Issuer: Microsoft Corporation Senior Unsecured Notes; assigned AaaRATINGS RATIONALEMicrosoft is the world's largest software company with $153 billion of revenue and a leading market share for its core products that make up the majority of revenue. Microsoft remains very well positioned to capitalize on continued acceleration in digital transformation efforts, particularly as public cloud, business intelligence and analytics, and security remain top IT spending priorities. Microsoft is increasingly considered a strategic public cloud provider in the enterprise and the breadth of product offerings across various layers of the software stack remain differentiated relative to the competition. In addition to exceptionally strong liquidity, Microsoft maintains a long track record of steady financial performance, strong and growing recurring revenue and cash flow as it continues to transition to a cloud-based software subscription model, a very diversified customer base in terms of geography, customer and end market and strong barriers to entry. We project Microsoft will generate consistently strong profitability with over 50% EBITDA margins and free cash flow generation of about $36 billion this fiscal year (after about $17 billion of dividends). With its substantial financial strength, the company is well positioned to address the challenges related to technology evolution and substitution through acquisitions and internal investments.The stable outlook reflects Moody's expectations that Microsoft will continue to maintain and defend its very strong market positions across a range of business and consumer PC, enterprise products and services as well as continue to profitably grow its cloud service offerings.ESG considerations are material to the rating. Corporate governance is an important element to Microsoft's credit profile. Microsoft's financial policy as it relates to returns to shareholders is balanced, as the company returns to shareholders approximately 80% of its cash flow from operations after capital expenditures in the form of dividends and repurchases. Microsoft's liquidity is exceptionally strong with cash and short-term investments of $132 billion as of December 2020 while financial leverage is low and declining. Social risks mainly relate to a range of privacy laws and rights that allow people to control their personal information in different jurisdictions globally. To the extent that Microsoft does not comply with data privacy rules, the company could be subject to more regulatory oversight, monetary fines, and reputational damage. Environmental risks are deemed low. Responsible sourcing, efficient energy use; participation in recycling programs, and the provision of cloud and AI services to help businesses cut energy consumption, reduce physical footprints, and design sustainable products themselves are also critical elements of Microsoft's environmental and social efforts.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe long term rating could be downgraded if Microsoft commences aggressive shareholder returns or if the company undertakes additional large, debt funded acquisitions such that Moody's expects adjusted gross leverage to continue to rise without a substantial increase in cash balances. In addition, downwards ratings pressure could develop if there is an erosion in Microsoft's' core business model, and if profitability or cash flow generation weaken sustainably.The principal methodology used in these ratings was Software Industry published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130740. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Richard J. Lane Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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