Cisco Systems Inc. (NASDAQ: CSCO) recently reported along with its earnings that its cash and cash equivalents and investments were $47.1 billion. So why did Cisco decide to raise capital by selling $8 billion in a new benchmark debt offering?

The first thing that may come to mind is that the company is considering a transitional large acquisition. While that can always be the case, the reality is that Cisco’s borrowing costs are debt cheap and most of its cash is now locked up outside of the United States.

For Cisco to repatriate that overseas capital, it would have to pay a hefty tax penalty. When you see the average coupons on the maturity schedules based upon its A1/AA- credit ratings, you will know why Cisco went for debt. Its highest yield paid to investors was on the ten-year note, which was 3.634% or only 90 basis points above the 10-year Treasury.

Sometimes it makes little sense for a company to raise debt. Sometimes the money is just too cheap to ignore – even if this money may be going back to shareholders and debt holders.

Cisco spent some $4 billion during the second quarter just buying back stock, and the company has spent a combined total of roughly $84.9 billion since it began its stock repurchase program. The remaining authorized amount for stock repurchases as of January 25, 2014 was approximately $12.1 billion, which came with no termination date.

Cisco will use the funds from the new offering for general corporate purposes, including to repay other debt maturities and to return capital to shareholders. Keep in mind that Cisco has almost $13 billion in direct long-term debt going into this offering, before calculating how much of the new offering will be used to repay some of the existing maturities coming due. The debt maturity schedule is as follows:

Principal Amount: $850,000,000 Maturity: September 3, 2015 Coupon: 3-month LIBOR + 5 bps

Principal Amount: $1,000,000,000 Maturity: March 3, 2017 Coupon: 3-month LIBOR + 28 bps

Principal Amount: $500,000,000 Maturity: March 1, 2019 Coupon: 3-month LIBOR + 50 bps

Principal Amount: $2,400,000,000 Maturity: March 3, 2017 Coupon: 1.100%

Principal Amount: $1,750,000,000 Maturity: March 1, 2019 Coupon: 2.125%

Principal Amount: $500,000,000 Maturity: March 4, 2021 Coupon: 2.900%

Principal Amount: $1,000,000,000 Maturity: March 4, 2024 Coupon: 3.625%

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