Apple prepares for $17bn jumbo bond sale
Apple is preparing the groundwork for another blockbuster debt sale in the region of $17bn that could rank as the second-largest corporate bond sale of all time.
The world’s most valuable company said last week that it planned to increase its share buyback from $60bn to $90bn, funded by domestic and international bond sales.
Apple plans to use proceeds from the debt sale to fund the buyback rather than tap its $150bn cash pile. About $130bn of that cash is held overseas, 88 per cent of the total, and returning it to the US would lead to a tax charge of up to 35 per cent.
A foreign debt sale would probably target the eurozone, where interest rates are lower than in the US, and diversify Apple’s debt investor base.
During Apple’s quarterly results call last week, Luca Maestri, Apple’s incoming finance chief, warned that repatriating offshore cash would incur “significant” tax consequences.
Mr Maestri, who joined Apple after stints at General Motors, Nokia Siemens Networks and Xerox, said the breakdown of markets and currencies for its debt sale would be decided later in the year.
Apple was likely to raise “an amount of term debt financing similar to what we issued in 2013”, he said, adding that preparations had also been made to tap the commercial paper market for short-term liquidity.
Apple sold bonds worth $17bn 12 months ago, which was the world’s largest corporate debt sale at the time, with demand for the offering topping $50bn. But that jumbo sale was eclipsed five months later when Verizon, the US telecoms company, sold $49bn worth of bonds to help finance its $130bn acquisition of the 45 per cent stake in Verizon Wireless it did not already own.
Apple’s domestic cash has run down from $39bn to $38bn since it paid its first dividend in August 2012 and Mr Maestri said he wanted to retain “sufficient domestic liquidity to grow the business and execute capital expenditures and acquisitions”.
Tim Cook, chief executive, said Apple was “on the prowl” for more acquisitions, after buying 24 companies in the past 18 months and he was not averse to large acquisitions.
The company has come under pressure to return more cash to shareholders by activists. Given its strong balance sheet and its double A credit rating, Apple is able to issue huge amounts of debt.
But analysts say the company needs to be wary of saturating the US debt market after last year’s bond sale, hence its examination of foreign markets.
An Apple bond issue will likely be greeted with open arms by the investment community
- Jack Ablin, chief investment officer, Harris Private Bank
The combination of Apple’s high credit quality and the likelihood of longer-dated tranches being included in the offer, are likely to appeal to pension funds and insurers, analysts said.
Jack Ablin, chief investment officer at Harris Private Bank, said that the new bonds would probably offer a higher yield than government bonds.
“An Apple bond issue will likely be greeted with open arms by the investment community,” he said.
Investors who bought Apple’s bonds last year are sitting on substantial price losses as the iPhone maker issued its debt just before long-term interest rates rose sharply last summer.
“Apple came at the very top of the market,” said Sabur Moini at Payden & Rygel. “That was great for the company, but not so much for the investors.”