Nov. 6 (Bloomberg) -- International Business Machines Corp., the world’s largest computer-services company, is planning a debt exchange for as much as $2 billion of securities, taking advantage of lower bond yields to reduce borrowing costs.

IBM is offering to swap its 7.125 percent bonds due 2096, 7 percent bonds due 2045 and 8 percent bonds due 2038 for new 5.6 percent senior notes due 2039 and cash, the Armonk, New York- based company said today in a statement. The company reduced interest expense to $84 million last quarter from $159 million during the similar period a year ago, according to a filing on Oct. 27 with the U.S. Securities and Exchange Commission.

A year after selling bonds at its highest premiums to Treasury yields on record, IBM is seeking to refinance longer- dated, higher-coupon debt. Investment-grade bond yields have fallen to 4.923 percent, a decline of 349.6 basis points from the high this year on March 10, according to Merrill Lynch & Co.’s U.S. Corporate Master index.

“It’s just good treasury management,” said Joel Levington, director of corporate credit research at Brookfield Investment Management Inc. in New York. “Just like everybody else, IBM sees an opportunity with low interest rates to refinance debt at a lower cost of funds.”

IBM’s 8 percent bonds due 2038 traded Nov. 4 at 134.8 cents on the dollar to yield 5.57 percent, or 119 basis points more than similar-maturity Treasuries, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. A basis point is 0.01 percentage point.

Gross Margin

The company’s gross margin, or the percentage of sales left after production costs, widened last quarter to 45.1 percent from 43.3 percent a year earlier, IBM said in an Oct. 15 statement, though it was narrower than the second-quarter margin of 45.5 percent.

Revenue fell for a fourth straight quarter as customers curbed technology spending in the recession. Third-quarter net income rose 14 percent to $3.21 billion, or $2.40 a share, from $2.82 billion, or $2.04, a year earlier. Analysts had projected profit of $2.39 on average.

The computer-services company said it’s offering a premium for bondholders who tender old notes before 5 p.m. New York time on Nov. 20. The offer expires at 12 a.m. Dec. 7.

“We are conducting the exchange offers to retire high- coupon, long-dated debt in a favorable interest rate environment,” IBM said in the statement.

Exchange Terms

IBM is offering holders of the 2096 bonds $259.01 cash and face value of the new securities if they tender by the Nov. 20 deadline. Those who tender later will get the same amount of cash but new notes equal to 97 cents of face value. It will pay $224.62 and face value of the new notes for the 2045 bonds or 98 cents for holders that tender after the Nov. 20 deadline, and $268.74 for the 2038 bonds plus new notes worth 110 percent of face value, which falls to 107 cents after the deadline.

The company is offering to exchange any and all of the three issues, according to its statement. It said there were $1 billion of the 2038 bonds outstanding, $150 million of the 2045 issue and $850 million of the 2096 maturity.

IBM issued bonds this week, a year after it sold debt during the worst financial crisis since the 1930s.

The company’s sale included $1.25 billion of 3.5-year notes that pay a 2.1 percent coupon, the lowest fixed rate it’s paid on a benchmark-size dollar deal since at least 1984, and $750 million of 2-year floating-rate notes yielding 4 basis points more than the three-month London interbank offered rate, Bloomberg data show. The fixed-rate debt priced to yield 70 basis points more than similar-maturity Treasuries.

IBM sold dollar-denominated debt in October 2008 when it raised $4 billion, the company’s biggest offering. It paid a spread of 400 basis points on $1 billion of 30-year bonds that are subject to today’s exchange offer and 387.5 basis points on 10-year notes.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

Last Updated: November 6, 2009 18:01 EST