Apple to hold $14 billion bond sale to take advantage of cheap borrowing costs
Apple plans to sell $14 billion worth of bonds, taking advantage of cheap borrowing costs to fund corporate operations like share buybacks.
Credit: SEC
The company plans to issue debt in six parts, with the longest offering being a 40-year security that will yield 95 basis points above Treasuries, Bloomberg reported on Monday. The preliminary filings for the bond sale also surfaced early Monday morning.
According to Bloomberg Barclays index data, average investment-grade companies will be able to borrow at a rate of 1.86% for roughly nine years, down from when Apple last offered a debt deal. Goldman Sachs Group, JPMorgan Chase, and Morgan Stanley and managing the bond sale.
Apple plans to use the proceeds for general corporate purposes the Cupertino tech giant plans, including stock buybacks and paying dividends to shareholders. The money could also be used for working capital, capital expenditures, repayment of debt, or acquisitions.
The new debt deals would mark the third time that it has tapped the market since May 2020. Apple issued bond sales of $8 billion in May, and another $5.5 billion bond sale in August.
Apple hoarded cash for years, but has recently switched strategies to reduce its net cash position. Mostly, that's been through payouts to shareholders.
Earlier in January, Apple reported quarterly revenue topping $100 billion for the first time. Its Q1 2021 results of $111.4 billion eclipsed its previous high of $91.8 billion and represented year-over-year growth of 21.4%.
Credit: SEC
The company plans to issue debt in six parts, with the longest offering being a 40-year security that will yield 95 basis points above Treasuries, Bloomberg reported on Monday. The preliminary filings for the bond sale also surfaced early Monday morning.
According to Bloomberg Barclays index data, average investment-grade companies will be able to borrow at a rate of 1.86% for roughly nine years, down from when Apple last offered a debt deal. Goldman Sachs Group, JPMorgan Chase, and Morgan Stanley and managing the bond sale.
Apple plans to use the proceeds for general corporate purposes the Cupertino tech giant plans, including stock buybacks and paying dividends to shareholders. The money could also be used for working capital, capital expenditures, repayment of debt, or acquisitions.
The new debt deals would mark the third time that it has tapped the market since May 2020. Apple issued bond sales of $8 billion in May, and another $5.5 billion bond sale in August.
Apple hoarded cash for years, but has recently switched strategies to reduce its net cash position. Mostly, that's been through payouts to shareholders.
Earlier in January, Apple reported quarterly revenue topping $100 billion for the first time. Its Q1 2021 results of $111.4 billion eclipsed its previous high of $91.8 billion and represented year-over-year growth of 21.4%.
Comments
Apple makes more than enough profit to amass a huge pool of cash, and pretty much guarantee long-term survival. What reason would they need to take on a huge amount of debt that has nothing to do with stock buybacks and dividends? The only thing I can see as being rational is an absolutely HUGE capital expenditure they want nobody being able to expect, because they’re not keeping cash around. Keeping huge amounts of cash around makes you more vulnerable to buyouts/acquisitions: as much as their market cap is, history has shown corporate raiders will take on giants if there’s money to be pocketed, and that makes it much easier to get funding from many sources as needed. Having huge amounts of debt acts sort of as an anchor that can work in their favor if done right: buying debt (by itself, unless it has paid for something with good ROI) is a huge liability. There may be more than one reason to do this, not even counting that the debt interest rates are lower than inflation currently has been and is likely to be (think of all the stimulus paid out, massive inflation has to happen sometime). By going into debt without acquiring other companies/IP, they don’t need to be concerned about antitrust issues in using their leverage in this way, because it’s too abstract to be tied to anything.
Apple, if nothing else, is hedging the current value of money against the future value, and is likely to make major amounts of money when you adjust for inflation when they pay back the debt. If they charge prices at inflation-adjusted prices for goods and services in the future, but they are only paying the past no-inflation-adjusted (mild interest rates) debt, they’re making money via a Time Machine (I had to throw in a pun) in the same way ordinary people build up value by buying a home with a mortgage, as their payments don’t change in the future, just the relative value of what they pay each month goes down.
Apple has continued to invest in itself and its future product lines and services. It shouldn't have spent more money on such things - i.e., beyond what it thought made sense - just because it had more money available to it. You don't just spend money because you have it. That's a good way to lose money. You spend money because there are reasons - and reason on-net - to do so. A well run business doesn't buy a new fleet of vehicles just because it has money to do so. It buys a new fleet of vehicles because it makes business sense to do so. These buybacks were done with money that was left over (or money borrowed effectively against money that was left over) after Apple spent whatever money it thought made sense on, e.g., R&D and acquisitions.
I haven't entered the latest buyback information, so I won't offer more precise numbers, but Apple is more than a trillion dollars ahead on its buybacks. That gained value is reflected in the current share price. If Apple wanted, or needed money for something, it could reissue and sell the shares it has bought back at an average price of just $50 and still come out ahead - i.e., it would have more money on its books than if it had not done the buybacks (and just held that money) at the same share dilution as if the buybacks never happened.
The prudence of different share buyback programs can be difficult to assess, even after the fact. But when it comes to Apple, it's pretty hard to argue that its buyback program hasn't been very successful - very profitable for its shareholders and, if needed, for the company itself. Consistent with my philosophy of equity investment, I'm generally not a fan of returning capital to shareholders. (And I'm certainly not a fan of doing so through dividends.) But at some point, when a company has been so successful that it doesn't have another prudent use for its retained profits, it makes sense to return capital to shareholders. Without the possibility that will eventually happen, equity investment in general doesn't make much sense.
That used to be a concern and a reason for borrowing in order to facilitate share repurchases, but it isn't anymore. With the Tax Cuts and Jobs Act, existing not repatriated foreign earnings were deemed repatriated for tax purposes. And going forward it doesn't matter whether foreign earnings are repatriated, the new minimum taxation rules apply anyway.
You comments on 'spending money for the sake of it' are excellent. Please will you come and talk to our HOA?
Apologies if I've got it wrong.
But the TCJA also changed how foreign earnings are treated going forward. Generally speaking foreign earnings aren't taxable in the U.S. now. We moved from a worldwide taxation system to a generally territorial taxation system. Like much of the rest of the developed world, we no longer - with some exceptions - tax foreign earnings of domestic corporations. So companies can generally repatriate foreign earnings without tax consequences. There are, however, some minimum taxation rules that apply to certain kinds of income and if foreign earnings aren't taxed to some minimum amounts by foreign countries. Those rules apply though whether the foreign earnings are repatriated.
Not that I'm at all interested in the answer, but just as a challenge which should point out the nothingness of your argument: where even do you think Apple has been deficient in self-investment?