Apple planning new Swiss franc-denominated bond issue at historically low interest rates

Posted:
in AAPL Investors edited February 2015
Apple looks set to continue expanding its debt offering program, with the company reportedly planning a new sale of bonds denominated in Swiss francs designed to take advantage of the extremely low yields available in the market.


Apple's Rue de Rive store in Geneva.


The size and maturity of the offering have yet to be decided, but a 10- to 15-year bond could fetch a yield of less than 0.5 percent, according to the Wall Street Journal. The company has retained Goldman Sachs and Credit Suisse to oversee the deal.

A yield below 0.5 percent would be a significant discount even from the exceptionally low rates Apple saw on its euro-denominated offering last November. That sale, which raised $3.5 billion, saw the company pay 1.1 percent on 8-year notes and 1.7 percent on 12-year notes.

"Much like in the euro market, we think retail demand for Apple bonds will be strong in the Swiss franc market," UBS credit strategist Thibault Colle told the Journal.

This would be Apple's second bond issue of the year. The company raised $6.5 billion last week, with roughly a 2.5 percent yield for 10-year notes and a 3.5 percent yield for 30-year notes.

Apple uses debt primarily to finance its $130 billion capital return program, as the cost is substantially less than the tax burden that would be incurred by repatriating some of the more than $140 billion in cash Apple currently holds overseas. The company is expected to announce an update to the capital return program during its quarterly earnings call in April.
«1

Comments

  • Reply 1 of 21

    They should be able to pay this off with overseas cash as well, which is good.

  • Reply 2 of 21
    Does this mean that whoever buys this bonds will get 0,5% interest on their investment by the expiration date?

    As in if they are worth 100 dollars you'd get 100,5?
  • Reply 3 of 21
    mpantonempantone Posts: 1,845member

    No, it would be 50 cents per year on the $100. At maturity (or if they call it) you'd get your hundred dollars back.

  • Reply 4 of 21
    aaarrrggghaaarrrgggh Posts: 1,608member
    Are they doing this to mitigate currency risk on their holdings, or just to tap multiple markets?
  • Reply 5 of 21
    mpantonempantone Posts: 1,845member

    Probably both.

     

    Usually there are a number of reasons why to do something like this, plus a number of reasons not to. There is rarely one sole reason to do anything important. You weigh the pros and cons of a given opportunity and decide whether or not it's the right mix.

     

    Even something relatively simple like deciding what to wear undergoes this type of analysis.

  • Reply 6 of 21
    bobschlobbobschlob Posts: 1,074member
    Quote:

    Originally Posted by mpantone View Post

     

    Probably both.

     

    Usually there are a number of reasons why to do something like this, plus a number of reasons not to. There is rarely one sole reason to do anything important. You weigh the pros and cons of a given opportunity and decide whether or not it's the right mix.

     

    Even something relatively simple like deciding what to wear undergoes this type of analysis.




    mpantone is wise and sees the beautiful colors...

  • Reply 7 of 21
    Do people really buy bonds with such a low interest rate? I see how this is a secure investment, but the return on the money is so low that I just don't see the point.
  • Reply 8 of 21
    john.bjohn.b Posts: 2,740member

    Can a foreign bond offering be used to fund a stock buyback based on stocks traded on a US exchange?  Seems like another Double Irish with a Dutch Sandwich tax avoidance scheme.  I guess we'll know in short order.

     

    As to the 0.5% interest rate, I literally don't see an upside for the investor, who gets a bond holding that is, what?, payable in Swiss Francs?  In that case, why not just hold Swiss Francs as a liquid asset for essentially the same currency risk (and return, after commission on the bond transactions)? 

  • Reply 9 of 21
    froodfrood Posts: 771member
    Quote:

    Originally Posted by Drunkzombie View Post



    Do people really buy bonds with such a low interest rate? I see how this is a secure investment, but the return on the money is so low that I just don't see the point.

     

    It is just a way for Apple to be able to spend some of its money in the U.S.    If they wanted to have $50 billion to spend on their new campus or super secret R&D project, this is how they get the cash into the US.   If they were to take some of the actual cash they have floating off the coast of Ireland and bring it into the US, they would have to spend about $70 billion to acquire the $50 billion they want because they would have to pay their taxes on the money.  By getting the money via a low interest bond, they get the $50 billion for only @$51 billion

  • Reply 10 of 21

    Quote:

    Originally Posted by Drunkzombie View Post



    Do people really buy bonds with such a low interest rate? I see how this is a secure investment, but the return on the money is so low that I just don't see the point.

     

    Quote:

    Originally Posted by John.B View Post

     In that case, why not just hold Swiss Francs as a liquid asset for essentially the same currency risk (and return, after commission on the bond transactions)? 

     

    Europe is having negative interest rates... European Central Bank is at -0.20%, Swiss National Bank is around -0.71%. You pay to hold Swiss Francs. So the yield is effectively 1.2% here.

  • Reply 11 of 21
    They should be able to pay this off with overseas cash as well, which is good.

    It is not allowed.
  • Reply 12 of 21
    cnocbuicnocbui Posts: 3,613member
    Quote:
    Originally Posted by konqerror View Post

     

     

     

    Europe is having negative interest rates... European Central Bank is at -0.20%, Swiss National Bank is around -0.71%. You pay to hold Swiss Francs. So the yield is effectively 1.2% here.


    Investors don't usually see those central bank rates, which are intended to encourage banks in the Eurozone to lend.  The Swiss rate is negative to disuade foreigners from holding Swiss deposits and causing appreciation in the value of the Franc.  I could get 0.75 % on amounts over €20K, so getting a 50% lower rate of return does not appear in any way attractive.  Thanks, Apple, but I'll stick with a 3.65 % term deposit rate thanks.

  • Reply 13 of 21
    They should be able to pay this off with overseas cash as well, which is good.

    If it's being issued by HQ, no, they cannot -- and will not -- do that. The IRS will go after them for tax evasion.
  • Reply 14 of 21
    aaarrrgggh wrote: »
    Are they doing this to mitigate currency risk on their holdings, or just to tap multiple markets?

    I think it's the latter. If Apple was trying to hedge currency risk, they'd be issuing debt in yuan, yen or euros.
  • Reply 15 of 21
    john.b wrote: »
    Can a foreign bond offering be used to fund a stock buyback based on stocks traded on a US exchange?  Seems like another Double Irish with a Dutch Sandwich tax avoidance scheme.  I guess we'll know in short order.

    As to the 0.5% interest rate, I literally don't see an upside for the investor, who gets a bond holding that is, what?, payable in Swiss Francs?  In that case, why not just hold Swiss Francs as a liquid asset for essentially the same currency risk (and return, after commission on the bond transactions)? 

    Yes, the foreign bond issue can be used to finance a domestic buyback as long as foreign cash is not being used to pay off that debt. But that creates currency risk.

    Re the low interest rate, everyone wants the certainty (low risk) of Swiss francs, so they're actually will to pay a return (get negative real interest) to hold it! Holding it as a 'liquid asset' in fact means that they, indeed, hold a SF bond or bill of some kind. (Unless you're suggesting that someone keep it as cash and, say, socked away under the mattress.)
  • Reply 16 of 21
    Quote:

    Originally Posted by Frood View Post

     

     

    It is just a way for Apple to be able to spend some of its money in the U.S.    If they wanted to have $50 billion to spend on their new campus or super secret R&D project, this is how they get the cash into the US.   If they were to take some of the actual cash they have floating off the coast of Ireland and bring it into the US, they would have to spend about $70 billion to acquire the $50 billion they want because they would have to pay their taxes on the money.  By getting the money via a low interest bond, they get the $50 billion for only @$51 billion




    The cash is already in the United States sitting in NYC banks. It's a complete myth that the actual money is "outside" the U.S. 

  • Reply 17 of 21

    Quote:
    Originally Posted by Drunkzombie 



    Do people really buy bonds with such a low interest rate? I see how this is a secure investment, but the return on the money is so low that I just don't see the point.

     

    Quote:

    Originally Posted by Frood View Post

     

    It is just a way for Apple to be able to spend some of its money in the U.S.    


     

    The question wasn't why Apple is offering the bonds but why anyone is investing in them given the ridiculously low interest they pay.
  • Reply 18 of 21
    freediverx wrote: »

    Yes, that is exactly my comment. I understand why Apple would want to sell bonds with almost non existent interest rate, I just don't see the investor willing to spend thousands of dollars to get a return of a few hundred over 15 years.
  • Reply 19 of 21
    dougddougd Posts: 292member
    Would seem to be a much better investment to buy AAPL stock than these bonds.
  • Reply 20 of 21
    Quote:

    Originally Posted by DougD View Post



    Would seem to be a much better investment to buy AAPL stock than these bonds.

    Not all investors have similar types of risk tolerance, and will/should, therefore, seek out similar cash flows.

     

    Moreover, Apple stocks are denominated solely in USD, while these bonds are denominated in SFR.

Sign In or Register to comment.