Apple reportedly horning in on corporate bond issues, bypassing asset management firms
Apple is among an elite cadre of cash-rich tech companies buying up corporate debt as a way to grow their coffers without befalling U.S. repatriation taxes, a report said Friday.
Citing sources with knowledge of the investments, Bloomberg reports Apple, Oracle, Google and seven other tech firms are sinking vast sums into corporate bond offerings.
With U.S. short-term interest rates hovering at near zero percent, debt markets have become increasingly attractive options for traditional investment managers, and it appears Apple agrees. People familiar with Apple's dealings said the company is now one of the biggest investors of short term bonds, at times buying $200 million of a $1 billion issue.
With more than $500 billion in assets, the companies are collectively giving established investment firms like Pacific Investment Management Co. (Pimco) a run for their money. The report said investing tech companies sometimes purchase as much as half of a bond issuance, making them competitors to investment firms that would traditionally serve as their money handlers.
As for offshore holdings, Bloomberg discovered representatives from Australia's biggest banks are being sent to Reno, Nev., where Apple's asset management subsidiary Braeburn Capital is located. Oracle is also known to field cash managers in the city.
The firms have reportedly channeled investments toward financial entities and well-rated companies like Exxon, Merck and Walmart. Recent buys have focused on investment-grade securities set to mature in two to three years, sources said.
Citing sources with knowledge of the investments, Bloomberg reports Apple, Oracle, Google and seven other tech firms are sinking vast sums into corporate bond offerings.
With U.S. short-term interest rates hovering at near zero percent, debt markets have become increasingly attractive options for traditional investment managers, and it appears Apple agrees. People familiar with Apple's dealings said the company is now one of the biggest investors of short term bonds, at times buying $200 million of a $1 billion issue.
With more than $500 billion in assets, the companies are collectively giving established investment firms like Pacific Investment Management Co. (Pimco) a run for their money. The report said investing tech companies sometimes purchase as much as half of a bond issuance, making them competitors to investment firms that would traditionally serve as their money handlers.
As for offshore holdings, Bloomberg discovered representatives from Australia's biggest banks are being sent to Reno, Nev., where Apple's asset management subsidiary Braeburn Capital is located. Oracle is also known to field cash managers in the city.
The firms have reportedly channeled investments toward financial entities and well-rated companies like Exxon, Merck and Walmart. Recent buys have focused on investment-grade securities set to mature in two to three years, sources said.
Comments
Braeburn according to the story
Ah, I missed that (or it was added, who knows) when I read it.
Always handy to have a front company.
Tech companies are looking more and more like insurance companies in the style of Buffett's Berkshire Hathaway.
The economy is still in the dumps and the outlook is as shaky as ever, so it only makes sense for Apple (and other companies) to buy back their own shares, or in the case of numerous other companies as we've seen recently, merge with other companies.
"The economy is still in the dumps and the outlook is as shaky as ever . . ."
Come on, the economy's outlook isn't the greatest but it's nowhere near as shaky as it was around the time of the Lehman collapse.
I'd like to better understand how they bypass repatriation taxes by buying up corporate bonds of foreign companies.
They buy it with foreign reserves... ok... but then the bonds pay back in USD? Wouldn't they pay back in the foreign currency and that's still foreign earnings that have to be repatriated right? Lower rate maybe for investment income instead of corporate earnings?
Come on, the economy's outlook isn't the greatest but it's nowhere near as shaky as it was around the time of the Lehman collapse.
It's pretty darn bad; there's a gigantic bubble in the world economy because of all the money being printed. The central banks basically have no idea how to back us off the ledge at this point.
Come on, the economy's outlook isn't the greatest but it's nowhere near as shaky as it was around the time of the Lehman collapse.
Before the Lehman collapse or after? There is currently a MASSIVE stock bubble and housing bubble that has been growing thanks to Fed interest rates. Why do you think the stock market is currently at record levels? It's not because "we're back, baby".
It's pretty darn bad; there's a gigantic bubble in the world economy because of all the money being printed. The central banks basically have no idea how to back us off the ledge at this point.
And banks in the US aren't making loans, they're pouring all this "free" money into property for themselves. Notice how many Chase banks have sprung up everywhere, but there aren't any customers going into them?
I'd like to better understand how they bypass repatriation taxes by buying up corporate bonds of foreign companies.
They buy it with foreign reserves... ok... but then the bonds pay back in USD? Wouldn't they pay back in the foreign currency and that's still foreign earnings that have to be repatriated right? Lower rate maybe for investment income instead of corporate earnings?
Bonds, similar to stocks, often tax at or below 15% instead of the US Repatriation fee of 35%.
It should be noted that most other countries are at or below 15% repatriation.. the US has THE highest fee in the world. Often an 'excuse' is that business tax is at around 35% in the US.. However, most businesses that have any brains pay less than 20%.
As a group, the 288 corporations examined in 2012 paid an effective federal income tax rate of just 19.4 percent over the five-year period — far less than the statutory 35 percent tax rate.
• Twenty-six of the corporations, including Boeing, General Electric, Priceline.com and Verizon, paid no federal income tax at all over a five year period. A third of the corporations (93) paid an effective tax rate of less than ten percent over that period.
• Of those corporations in our the with significant offshore profits, two thirds paid higher corporate tax rates to foreign governments where they operate than they paid in the U.S. on their U.S. profits.
These findings refute the prevailing view inside the Washington, D.C. Beltway that America’s corporate income tax is more burdensome than the corporate income taxes levied by other countries, and that this purported (but false) excess burden somehow makes the U.S. “uncompetitive.”
It's actually things like our repatriation fee of 35% that holds our larger US businesses back from re-investing the their own country because they feel it's irresponsible to pay the largest fee in the world to get it back into the US. Congress is stupid, blind and just plain wrong. We should lower it down to between 10-15% and get that money back.. It's obvious that companies like Apple want to bring it home, but Big Gov't just isn't functioning anymore.. To busy with their hands out.
Apple, unlike those others listed above, pays an average of 26% federal income tax on it's US based income. Not ZERO like Verizon and others. How Verizon gets 0% income tax is mind-boggling.
Tech companies are looking more and more like insurance companies in the style of Buffett's Berkshire Hathaway.
Berkshire Hathaway is not an insurance company. It owns all of an insurance company as well as owns other companies. Berkshire Hathaway likes buying whole companies as investments.
Apple doesn't buy whole companies unless it gets IP or people to add to Apple. So it is totally unlike Berkshire Hathaway.
Sometimes too much cash is a burden. Apple should return more cash to investors either through shares buy back or through dividend. Keep $50B around for strategic M&A ought to be enough.
Cash is not at all a burden. Apple is highly valuable because it has so much cash. It would be worth far less without the cash.
$50 Billion for strategic M&A is absolutely not enough. Having so little money would make Apple's stock completely unstable.
Apple spends billions on its supply chain. That is where most of its investment lies. And Apple spends way ahead of time to get all of the supplies it needs for years.
With Apple's bond purchases, Apple seeks to grow its money stockpile even more by investing it so it has even more income.
Is Apple handling it directly, or through Braeburn Capital?
Braeburn according to the story
Braeburn is a part of Apple (wholly-owned subsidiary, or whatever). It's not a separate arms-length corporation but the division of Apple that handles its investments.
Berkshire Hathaway's primary business and historical source of cash was and is insurance. It currently contains 70 different insurance companies including GEICO and General Re. It is also relatively recently that Berkshire Hathaway is acquiring whole companies, earlier in its history, it made more passive investments.
Also note that I said "Tech companies" and did not only include apple in my comments. Anyway, where in the past, Insurance was used as the cash generation engine to fuel other investments, to me, today, it is clear that tech is the cash generation engine which allows these companies to make a broad range of investments. Apple hasn't made any major acquisitions of entire companies yet, and maybe they do not intend to, but their competitors have, and Apple is a major player in certain investment spaces. Who knows what the future may hold. I sure wouldn't be opposed to using Apple as my bank for instance.
It depends upon whom you want to believe. I tend to see a more negative reality than many paint, the economy is in fact in the dumps. There are significant long term issues that really don't have an easy solution. Part of the problem is excessive population growth combined with rapid automation of just about everything.
Locally I've not seen as many businesses go under in a very long time and combined with vacant commercial real estate I don't see a pretty picture. Frankly it is the worst I've seen in years.
If someone has a negative outlook for stocks and the economy, the best position to be in is to hold cash and short term, high grade securities. If a company believes that their stock or the stock of other companies is in "bubble territory," instead of buying back shares or merging now, they could wait for the valuation to collapse then buy the assets and companies for pennies on the dollar from people who are in a more financially precarious or overextended position.
The period of time in AAPL from late 2012 to late 2014 was a tremendous gift for long term AAPL shareholders as it allowed the company to buyback shares at extremely attractive levels.
Do I personally think AAPL is overvalued? No, but it certainly is not as undervalued as it was in the recent past.