Apple to raise at least $1.08 billion from two-part Swiss bond sale

Posted:
in AAPL Investors edited February 2015
Apple today is expected to complete a two-part sale of Swiss-franc bonds, raising at least $1.08 billion U.S. to help fund its massive ongoing capital reinvestment program.


Apple's Rue de Rive store in Geneva.


The bond will mature in November 2024 at at implied yield of about 0.25 percent, and the 15-year bold will price at an implied yield pegged at 0.7 percent, according to The Wall Street Journal.

Apple is opting to offer its bond in Swiss francs because demand for debt has pushed government bonds in Switzerland below 0 percent on maturities stretching out to 11 years. That's pushed prices on corporate bonds down as well, which is expected to allow Apple to borrow money cheaply.

The money borrowed by Apple is expected to be used for dividend payments and share repurchases. With some $179 billion in cash, and more than $140 billion of that overseas, Apple has been using its massive pile of excess money to reinvest in itself.

The Swiss franc-denominated bond sale will be overseen by Goldman Sachs and Credit Suisse. Word of its sale first surfaced earlier this week.

Demand for Apple bonds in the Swiss franc market is expected to be strong, given that the company is widely known and profitable.

Tuesday's expected sale will be Apple's second bond issue of the year. The company raised $6.5 billion last week, with a roughly 2.5 percent yield for 10-year notes and a 3.5 percent yield for 30-year notes.
«1

Comments

  • Reply 1 of 23
    This will cost Apple money from interest and arbitrage because the payments made in Swiss Francs will cost more to redeem if the payments are made in Dollars. Over time the Swiss Franc is expected to continue to strengthen against the Dollar. I guess if Apple already earns enough to pay this from income in the Swiss Franc it will be a moot point, but it does still potentially have a higher opportunity cost than debt denominated in Dollars.
  • Reply 2 of 23
    MacProMacPro Posts: 18,373member
    This will cost Apple money from interest and arbitrage because the payments made in Swiss Francs will cost more to redeem if the payments are made in Dollars. Over time the Swiss Franc is expected to continue to strengthen against the Dollar. I guess if Apple already earns enough to pay this from income in the Swiss Franc it will be a moot point, but it does still potentially have a higher opportunity cost than debt denominated in Dollars.

    Where does it say "the payments are made in Dollars"? I missed that. Oh you mean dividends ... I see.
  • Reply 3 of 23
    mgzmgz Posts: 26member
    Quote:

    Originally Posted by Macnewsjunkie View Post



    This will cost Apple money from interest and arbitrage because the payments made in Swiss Francs will cost more to redeem if the payments are made in Dollars. Over time the Swiss Franc is expected to continue to strengthen against the Dollar. I guess if Apple already earns enough to pay this from income in the Swiss Franc it will be a moot point, but it does still potentially have a higher opportunity cost than debt denominated in Dollars.



    As long as it costs less than 35% ($350M), it's better than buying those shares or paying those dividends using money repatriated to the USA.

  • Reply 4 of 23
    Quote:

    Originally Posted by Macnewsjunkie View Post



    This will cost Apple money from interest and arbitrage because the payments made in Swiss Francs will cost more to redeem if the payments are made in Dollars. Over time the Swiss Franc is expected to continue to strengthen against the Dollar. I guess if Apple already earns enough to pay this from income in the Swiss Franc it will be a moot point, but it does still potentially have a higher opportunity cost than debt denominated in Dollars.



    Maybe they think that they are implicitly hedging against currency risk by issuing bonds in a variety of currencies. But the swiss franc in particular seems like a risky idea. So much currency risk right now is political... I think I'd stick with $$. But hey -- I'm sure the Goldman guys are pretty smart. Maybe it will work out fine. 

  • Reply 5 of 23
    I don't see how Apple can use this money for their dividends and share repurchases? Wouldn't this money just get dumped into their foreign cash pile and face the same issues that they typically do in bringing that money to the US?
  • Reply 6 of 23
    mpantonempantone Posts: 1,429member
    Quote:
    Originally Posted by dstarsboy View Post



    I don't see how Apple can use this money for their dividends and share repurchases? Wouldn't this money just get dumped into their foreign cash pile and face the same issues that they typically do in bringing that money to the US?



    The money from the sale of the bonds isn't considered profit from overseas operations, thus it is not subject to the 35% corporate tax and repatriation issues.

     

    The bond is a loan. Apple has to pay back whatever they borrowed (the billion or so) to bond holders at some point.

  • Reply 7 of 23
    relicrelic Posts: 4,735member
    blastdoor wrote: »

    Maybe they think that they are implicitly hedging against currency risk by issuing bonds in a variety of currencies. But the swiss franc in particular seems like a risky idea. So much currency risk right now is political... I think I'd stick with $$. But hey -- I'm sure the Goldman guys are pretty smart. Maybe it will work out fine. 

    The Swiss Franc is still one of most traded currencies on Forex because of it's high price stability and low inflation rates. The Swiss frank is one of the most solid currencies in the world to invest in. Where as the US dollar would probably be one of the last currencies I would personally invest in, unless I was a day trader and could watch the market closely, in terms of long term investments though, I wouldn't do it.
  • Reply 8 of 23

    This is a loan, therefore not subject to repatriation taxes.  However, as it's a bond being offered in Switzerland (who is quite fond of importing foreign currencies), they can likely pay it back with the mountain of cash that they can't bring back to the US due to the astronomical tax rate.

     

    Consider it high finance money laundering?

     

    EDIT:  Plus, the interest on the bond will be way below inflation, so this is effectively free money.

  • Reply 9 of 23
    This is a loan, therefore not subject to repatriation taxes.  However, as it's a bond being offered in Switzerland (who is quite fond of importing foreign currencies), they can likely pay it back with the mountain of cash that they can't bring back to the US due to the astronomical tax rate.

    Consider it high finance money laundering?

    EDIT:  Plus, the interest on the bond will be way below inflation, so this is effectively free money.

    Money laundering? Baloney!
  • Reply 10 of 23
    blastdoorblastdoor Posts: 1,954member
    Quote:

    Originally Posted by Relic View Post





    The Swiss Franc is still one of most traded currencies on Forex because of it's high price stability and low inflation rates. The Swiss frank is one of the most solid currencies in the world to invest in. Where as the US dollar would probably be one of the last currencies I would personally invest in, unless I was a day trader and could watch the market closely, in terms of long term investments though, I wouldn't do it.



    Apple isn't making an investment -- they are issuing a bond (that is, they aren't lending, they're borrowing). You don't want to borrow money in a currency that you expect to go up relative to your own currency. Instead, you want to borrow money in a currency that is expected to lose value. 

  • Reply 11 of 23
    sflocalsflocal Posts: 4,702member
    Quote:

    Originally Posted by MachineShedFred View Post

     

    This is a loan, therefore not subject to repatriation taxes.  However, as it's a bond being offered in Switzerland (who is quite fond of importing foreign currencies), they can likely pay it back with the mountain of cash that they can't bring back to the US due to the astronomical tax rate.

     

    Consider it high finance money laundering?

     

    EDIT:  Plus, the interest on the bond will be way below inflation, so this is effectively free money.


     

    money laundering is illegal.  This is not.  Smart financial planning for sure, and the ability to give the U.S. politicians the middle-finger at the same time. :)

  • Reply 12 of 23

    So if Apple has $40bil in the bank why borrow? They have the money already.

     

    This is why I hate accounting. It makes ZERO logical sense. Why borrow money with interest payments needing to be paid when you can save paying that interest because you already have the money.

  • Reply 13 of 23
    Quote:

    Originally Posted by Darryn Lowe View Post

     

    So if Apple has $40bil in the bank why borrow? They have the money already.

     

    This is why I hate accounting. It makes ZERO logical sense. Why borrow money with interest payments needing to be paid when you can save paying that interest because you already have the money.




    Are you kidding? Accounting is fascinating (I'm not kidding). I know very little, but when you understand accounting, you have a much better understanding of what is possible with money. Money is just a tool.

  • Reply 14 of 23
    welshdogwelshdog Posts: 1,694member
    Quote:

    Originally Posted by Darryn Lowe View Post

     

    So if Apple has $40bil in the bank why borrow? They have the money already.

     

    This is why I hate accounting. It makes ZERO logical sense. Why borrow money with interest payments needing to be paid when you can save paying that interest because you already have the money.


    Yeah this is why I really dislike so many of the machinations of the business world. It's all vaguely deceptive, sneaky and smells bad even though it is entirely legal.  Given a problem to solve, my brain innately looks for the simple, straightforward and honest way to solve it.  Business people never do that and instead look for the "advantage" that benefits them first, and the company second and maybe even the customer (not usually).  The competitive world is the realm of the reptile brain, I hope someday we can rise above that.

  • Reply 15 of 23
    welshdog wrote: »
    Yeah this is why I really dislike so many of the machinations of the business world. It's all vaguely deceptive, sneaky and smells bad even though it is entirely legal.  Given a problem to solve, my brain innately looks for the simple, straightforward and honest way to solve it.  Business people never do that and instead look for the "advantage" that benefits them first, and the company second and maybe even the customer (not usually).  The competitive world is the realm of the reptile brain, I hope someday we can rise above that.

    You'll be waiting a long, long, long time. LOL. All human beings are self-interested. Competition is a part of life.
  • Reply 16 of 23
    welshdogwelshdog Posts: 1,694member
    Quote:

    Originally Posted by SpamSandwich View Post





    You'll be waiting a long, long, long time. LOL. All human beings are self-interested. Competition is a part of life.

    Yes indeed, I was thinking of evolutionary change. 

  • Reply 17 of 23
    welshdog wrote: »
    Yes indeed, I was thinking of evolutionary change. 

    How do you know if people wouldn't just evolve into more ruthless competitors?
  • Reply 18 of 23
    davidwdavidw Posts: 975member
    Quote:
    Originally Posted by Darryn Lowe View Post

     

    So if Apple has $40bil in the bank why borrow? They have the money already.

     

    This is why I hate accounting. It makes ZERO logical sense. Why borrow money with interest payments needing to be paid when you can save paying that interest because you already have the money.


     

    It's the same reason why I borrow money using my margin account rather than to sell some of my AAPL shares to get the money I need. If I had sold some AAPL in the beginning of last year, instead of borrowing the money, I would had lost out on 40% gain (not to mention the dividend) and have to pay capital gains tax on the sold shares. Instead, I paid an 8% interest. Interest that I can deduct to reduce my capital gains tax.  As long as I think AAPL will go up by more that 10% a year, I rather borrow the money and pay the interest rather than to sell any AAPL. AAPL is already up 10% for this year. 

  • Reply 19 of 23
    welshdog wrote: »
    Yeah this is why I really dislike so many of the machinations of the business world. It's all vaguely deceptive, sneaky and smells bad even though it is entirely legal.  Given a problem to solve, my brain innately looks for the simple, straightforward and honest way to solve it.  Business people never do that and instead look for the "advantage" that benefits them first, and the company second and maybe even the customer (not usually).  The competitive world is the realm of the reptile brain, I hope someday we can rise above that.

    You'll be waiting a long, long, long time. LOL. All human beings are self-interested. Competition is a part of life.

    So you keep telling us.

    Happily, you're still wrong.
  • Reply 20 of 23
    So you keep telling us.

    Happily, you're still wrong.

    It's in your self-interest to be argumentative and seek out negative attention, which is something I've understood about you for a while. Also, this theory of human behavior didn't originate from me, it's baked into the US Constitution.
Sign In or Register to comment.