Apple announces first sterling-denominated bond valued at $2B US

Posted:
in AAPL Investors edited July 2015
In a filing with the U.S. Securities and Exchange Commission on Friday, Apple announced its first-ever sterling-denominated bond issuance set at 1.25 billion pounds, or nearly $2 billion.




The debt offering, detailed in a free writing prospectus supplementing Apple's massive 2013 bond sale, consists of two notes, one set at 750 million pounds maturing on July 31, 2029, and another at 500 million pounds due on the same day in 2042. Interest payments on the 12- and 17-year notes are semi-annual on Jan. 31 and Jul. 31 of each year, set to commence in 2016 .

Apple's bonds are supported by Goldman, Sachs & Co., Merrill Lynch International, HSBC Bank, Deutsche Bank's London Branch and J.P. Morgan Securities and achieved Aa1 and AA+ ratings by Moody's and Standard & Poor's, respectively. Barclays Bank, Lloyds Bank and The Royal Bank of Scotland are named as co-managing institutions.

As its overseas cash hoard balloons to more than $190 billion, Apple has increasingly taken to debt markets in a bid to raise funds for a domestic capital returns program. The company could use its international reserves to repurchase stock, but is reluctant to repatriate funds due to high U.S. tax rates. Multiple tech firms based in the U.S. face similar issues and are also seeing their overseas cash piles grow.

Apple previously offered bonds in the both U.S. dollars and Euros, but more recently showed heightened interest in low rate zones in Asia and Europe. In June, for example, Apple raised $2 billion in yen-denominated bonds, which followed a smaller offering in Swiss franc-denominated offering in February.

Apple plans to return $200 billion to shareholders through dividends and stock buybacks by the end of March 2017.
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Comments

  • Reply 1 of 27
    fallenjtfallenjt Posts: 3,976member

    Keep doing this until you take your company to private, Tim. Sick of WS anal...yst.

  • Reply 2 of 27
    solipsismysolipsismy Posts: 5,099member
    In a filing with the U.S. Securities and Exchange Commission on Friday, Apple announced its first-ever pound-denominated bond issuance set at 1.25 billion pounds sterling, or nearly $2 billion.

    The debt offering, detailed in a free writing prospectus consists of two notes set at 750 million pounds maturing on July 31, 2029, and another at 500 million pounds due on the same day in 2042.

    Wouldn't two notes set at 750 million £ and one set at 500 million £ equal 2 billion £, not 1.25 billion £, unless you don't meant two sets at 750 million £, but only one note set that amount, but two bonds in total.
  • Reply 3 of 27
    anantksundaramanantksundaram Posts: 19,223member
    Still struggling to understand the rationale of all these foreign currency (e.g., SFR, YEN) bond issues (no, it's not to fund share repurchases in the U.S., since that would be treated as a 'deemed repatriation'), when there's so much foreign cash sitting around.

    The only plausible explanation is: (1) to fund local operations with local currency financing; and simultaneously (2) hold on to the cash to bring back to the U.S. at some sort of lower, one-time 'tax holiday' type deal, which might be in the works in the next few months.
  • Reply 4 of 27
    anantksundaramanantksundaram Posts: 19,223member
    solipsismy wrote: »
    In a filing with the U.S. Securities and Exchange Commission on Friday, Apple announced its first-ever pound-denominated bond issuance set at 1.25 billion pounds sterling, or nearly $2 billion.

    The debt offering, detailed in a free writing prospectus consists of two notes set at 750 million pounds maturing on July 31, 2029, and another at 500 million pounds due on the same day in 2042.

    Wouldn't two notes set at 750 million £ and one set at 500 million £ equal 2 billion £, not 1.25 billion £, unless you don't meant two sets at 750 million £, but only one note set that amount, but two bonds in total.

    It's a bit ambiguously/awkwardly worded. It could also be read to mean 'two notes totaling £750M'.
  • Reply 5 of 27
    I don't get this. Can someone explain this to me? Is this done to make interest in the long run?
  • Reply 6 of 27
    SpamSandwichSpamSandwich Posts: 31,190member

    (in best Sean Connery voice) "Bonds... Pounds Sterling Bonds." 

  • Reply 7 of 27
    dyno86dyno86 Posts: 3member
    I don't get this. Can someone explain this to me? Is this done to make interest in the long run?

    So it seems they are doing this so they don't have to pay the high tax on repatriation of funds from abroad. So instead of paying the tax they are creating artificial debt and benefiting from the monies immediately and then paying back the Bond (Debt) using the local cash. Hence why there have been a few foreign bonds recently YEN EUR GBP. Apple have a great advantage over many to be able to do this and not incur any negative feedback or credit rating they have no debt at all apart from these bonds and with a bigger pile of cash all debts it costs virtually nothing for them to create debt so when these bonds are repaid they will actually make a profit Again.
  • Reply 8 of 27
    sacto joesacto joe Posts: 742member
    Quote:

    Originally Posted by josephwinters View Post



    I don't get this. Can someone explain this to me? Is this done to make interest in the long run?



    It's quite simple. Apple doesn't want to repatriate its foreign-earned cash right now because of the high tax on it. And it doesn't have to, under current law (which may be changing, btw). At the same time, it wants to be able to purchase more of its own stock, since it considers the present stock price to be a good "investment" that, in effect, gives value back to its long term stock holders (like me). It so happens that loans can be had at extremely low rates these days. Apple basically uses its offshore cash as collateral to procure those loans. At the same time, that cash is drawing interest of its own! Finally, the more stock Apple buys back, the less stock remains to pay dividends on. Those two items mean that the borrowing cost is almost completely offset.

     

    Bottom line, the foreign banks are happy because it's an extremely low risk loan, long term investors are happy because when Apple buys back its own stock it effectively reduces the number of slices in the "Apple pie", and Apple is happy because it can make its long term investors happy. 

  • Reply 9 of 27
    sacto joesacto joe Posts: 742member
    Quote:
    Originally Posted by Sacto Joe View Post

     



    It's quite simple. Apple doesn't want to repatriate its foreign-earned cash right now because of the high tax on it. And it doesn't have to, under current law (which may be changing, btw). At the same time, it wants to be able to purchase more of its own stock, since it considers the present stock price to be a good "investment" that, in effect, gives value back to its long term stock holders (like me). It so happens that loans can be had at extremely low rates these days. Apple basically uses its offshore cash as collateral to procure those loans. At the same time, that cash is drawing interest of its own! Finally, the more stock Apple buys back, the less stock remains to pay dividends on. Those two items mean that the borrowing cost is almost completely offset.

     

    Bottom line, the foreign banks are happy because it's an extremely low risk loan, long term investors are happy because when Apple buys back its own stock it effectively reduces the number of slices in the "Apple pie", and Apple is happy because it can make its long term investors happy. 




    To add a bit more "color"; Apple can buy AAPL at a P/E of 14.x today. P/E is Price over Earnings Per Share (EPS). EPS is found by dividing the net income for the most recent quarters by the number of shares on the market. Notice that Apple is REDUCING the number of shares on the market. Ergo, Apple is driving up the EPS simply by buying its own shares. And it's buying them up in huge numbers, tens of millions per quarter. By one calculation, Apple has bought back 13% of the total outstanding shares in the last 2 1/2 years.

     

    P/E is the yardstick that presumably lets us compare various companies to one another, since the number of shares outstanding and the price of those shares varies widely. And a P/E of 14.x today is considered exceedingly low, especially for a company that is growing revenue and net income like Apple is, and with Apple's huge and growing cash stash.

     

    So Apple will continue to buy back its shares so long as the P/E is depressed, and that will increase the E part of the equation, which will depress the P/E some more, which will - well, you get the idea. So what then? Well, either the market starts to value AAPL fairly, or the P/E will continue shrinking until, hard as it is to believe, Apple will literally be able to buy itself back. Hopefully it won't come to that, and even if it did, it's many, many years off.

     

    But let's say that the market does come to its senses and does start to value Apple properly. What then? Well, then the long term holders REALLY get rewarded! Because instead using the cash to buy back its stock, Apple will vastly increase stock dividends, perhaps even to unheard-of levels. And Apple will then become one of the bluest of the blue chip stocks anyone can own.

  • Reply 10 of 27
    anantksundaramanantksundaram Posts: 19,223member
    sacto joe wrote: »


    It's quite simple. Apple doesn't want to repatriate its foreign-earned cash right now because of the high tax on it. And it doesn't have to, under current law (which may be changing, btw). At the same time, it wants to be able to purchase more of its own stock, since it considers the present stock price to be a good "investment" that, in effect, gives value back to its long term stock holders (like me). It so happens that loans can be had at extremely low rates these days. Apple basically uses its offshore cash as collateral to procure those loans. At the same time, that cash is drawing interest of its own! Finally, the more stock Apple buys back, the less stock remains to pay dividends on. Those two items mean that the borrowing cost is almost completely offset.

    Bottom line, the foreign banks are happy because it's an extremely low risk loan, long term investors are happy because when Apple buys back its own stock it effectively reduces the number of slices in the "Apple pie", and Apple is happy because it can make its long term investors happy. 

    Yikes, for the last time (see my post above), you CANNOT do that by borrowing money abroad. The IRS will go after you for a 'deemed repatriation.' If this wa so simple to do, Apple would be issuing all of its bonds abroad. Heck, every company would be doing it.

    Please at least take the trouble to read the thread before posting wrong information. It is not a very long thread.
  • Reply 11 of 27
    sacto joesacto joe Posts: 742member
    Quote:

    Originally Posted by anantksundaram View Post





    Yikes, for the last time (see my post above), you CANNOT do that by borrowing money abroad. The IRS will go after you for a 'deemed repatriation.' If this wa so simple to do, Apple would be issuing all of its bonds abroad. Heck, every company would be doing it.



    Please at least take the trouble to read the thread before posting wrong information. It is not a very long thread.

    I think it's more complicated than that. Apple is putting all the taxes aside for repatriation purposes. It's not be added in as earnings.

  • Reply 12 of 27
    anantksundaramanantksundaram Posts: 19,223member
    sacto joe wrote: »
    I think it's more complicated than that. Apple is putting all the taxes aside for repatriation purposes. It's not be added in as earnings.

    No, it's not complicated. The IRS is not that stupid. To repeat, you CANNOT issue debt abroad to finance a repurchase in the U.S. when there's unrepatriated cash sitting around. Period.

    And the rest of your post lost me. I cannot make sense of it.
  • Reply 13 of 27
    paul94544paul94544 Posts: 1,027member
    Quote:

    Originally Posted by anantksundaram View Post





    No, it's not complicated. The IRS is not that stupid. To repeat, you CANNOT issue debt abroad to finance a repurchase in the U.S. when there's unrepatriated cash sitting around. Period.



    And the rest of your post lost me. I cannot make sense of it.



    They are using the bonds to pay for dividends and other purchases not share repurchases

  • Reply 14 of 27
    paul94544 wrote: »

    They are using the bonds to pay for dividends and other purchases not share repurchases

    No, you cannot do that either. Dividends are similar to repurchases in the way IRS views deemed repatriations: they are both seen as ways to return money to shareholders.

    PLEASE stop making up stuff. I realize that anything goes on the Internet, but it really would be good if we can stick to facts, or if opinions, reasoned opinions here on AI.
  • Reply 15 of 27
    dickprinterdickprinter Posts: 1,060member
    Quote:

    Originally Posted by anantksundaram View Post





    No, you cannot do that either. Dividends are similar to repurchases in the way IRS views deemed repatriations: they are both seen as ways to return money to shareholders.



    PLEASE stop making up stuff. I realize that anything goes on the Internet, but it really would be good if we can stick to facts, or if opinions, reasoned opinions here on AI.

    Anantksundaram, every article that I just read from Reuters, Bloomberg, WSJ, et al., all say that the bond money is being used to buy back stock and to fund dividends. Makes sense to me because the bond money is borrowed money and not accounted as an asset -- Apple didn't earn it so Apple doesn't 'own' it. Therefore, they may use the money for whatever they please. The way I understand it, they are basically transferring the borrowed money to shareholders and/or are using it to buy stock.

     

    http://www.bloomberg.com/news/articles/2013-04-30/apple-plans-six-part-bond-sale-in-first-offering-since-1996-1-

     

    http://www.economist.com/blogs/buttonwood/2013/05/apples-bond-issue

     

    http://blogs.wsj.com/moneybeat/2015/02/10/three-reasons-apple-is-selling-bonds-in-switzerland/

    See point #2

     

    http://www.forbes.com/sites/timworstall/2013/04/30/with-all-of-apples-cash-why-is-it-issuing-bonds/

     

    Don't kill the messenger. I know everything goes on the Internet but in this case, some degree of trust needs to be given to Bloomberg, WSJ, Forbes, etc. if they are all saying the same thing. Are you implying that these authors and contributors are all wrong and/or do not know what they're talking about?

  • Reply 16 of 27
    sacto joesacto joe Posts: 742member
    No, it's not complicated. The IRS is not that stupid. To repeat, you CANNOT issue debt abroad to finance a repurchase in the U.S. when there's unrepatriated cash sitting around. Period.

    And the rest of your post lost me. I cannot make sense of it.
    Who said the purchase is in the U.S.?
  • Reply 17 of 27
    crowleycrowley Posts: 5,930member
    Quote:

    Originally Posted by Sacto Joe View Post





    Who said the purchase is in the U.S.?



    It has to be.  Apple issues shares through the NASDAQ in the U.S., so any repurchase goes through the NASDAQ in the U.S.

  • Reply 18 of 27
    anantksundaramanantksundaram Posts: 19,223member
    sog35 wrote: »

    Apple is not repatriating foreign profits.

    I should have clarified. They cannot use the foreign subsidiary's cash flows to service the foreign currency debt, but rather, have to use cash flows generated in the U.S. It is the use of the foreign subsidiary's cash flows that would be considered deemed repatriation.

    Mea culpa.

    (Props to Dickprinter for his post; unable to do multiple quotes on my iPad, for some reason).
  • Reply 19 of 27
    pjapkpjapk Posts: 23member
    I'm curious. What would be the biggest impact of Apple being able to repatriate all their overseas cash at, what they deem, a sensible tax rate? In other words, what more would it likely allow them to do that it can't (so easily or financially efficiently) do now?

    Also, wouldn't an overnight extraction of $200bn from the various overseas market have an impact in those markets?

    I know nothing of financial tricks etc. just a curious bystander...
  • Reply 20 of 27
    No, you cannot do that either. Dividends are similar to repurchases in the way IRS views deemed repatriations: they are both seen as ways to return money to shareholders.

    PLEASE stop making up stuff. I realize that anything goes on the Internet, but it really would be good if we can stick to facts, or if opinions, reasoned opinions here on AI.

    You need to get off your high horse, man. I work on Wall st. for a career so I know a little about this. The only reason they're issuing foreign currency-denominated debt is because that debt is generally "priced" (the interest rate is derermined) using the currency's central bank's interest rate—which in the causes of European countries and Japan is currently rock bottom, even lower than in the United States. Debt is tied to the riskiness of a currency/country as well as the company itself. Simply allows Apple to borrow at a lower cost. Doesn't prevent it from using that money on returning capital.
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