Apple issues new euro bond worth more than $2.25B

Posted:
in AAPL Investors edited September 2015
In a U.S. Securities and Exchange Commission filing on Thursday, Apple announced a new two-billion euro debt offering (about $2.26 billion) as it continues to take advantage of historically low interest rates.




Apple is offering two bonds set at 1 billion euros each that are slated to mature on Jan. 17, 2024 and Sept. 17, 2027. Yields on the euro-denominated bonds are expected to hit 1.426 percent for the 9-year notes and 2.040 percent for the 12-year notes, with annual interest payments due to start next year on Jan. 17 and Sept. 17, respectively.

Underwriting Apple's latest bond issuance are Goldman, Sachs & Co., Deutsche Bank, J.P. Morgan Securities and Merrill Lynch International, while Citigroup Global Markets Limited and Credit Suisse Securities (Europe) Limited are acting as co-managers.

The debt offering is dated for Sept. 10, 2015 and holds a settlement date of Sept. 17 with denominations set at 100,000 euros. Buys in excess of 100,000 euros will be completed at integral multiples of 1,000 euros.

Apple is turning to debt markets to raise funds to buy back stock and issue dividends as part of its capital returns program. The company has more than $190 billion in offshore assets, but is averse to repatriating the cash due to high U.S. tax rates.

Apple has raised billions of dollars from bond sales, denominated in U.S. dollars, Japanese yen, Swiss francs, euros and British pounds.

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

Comments

  • Reply 1 of 14

    I don't understand why anyone would tie up money for 9 years at 1.426%.  The dividend yield on the common stock is 1.85%, the company has a history of raising the dividend every year (10% raise this year alone), and there is the strong possibility of appreciation over a 9-year period.

  • Reply 2 of 14
    msuberly wrote: »
    I don't understand why anyone would tie up money for 9 years at 1.426%.  The dividend yield on the common stock is 1.85%, the company has a history of raising the dividend every year (10% raise this year alone), and there is the strong possibility of appreciation over a 9-year period.

    Asset allocation and diversification. Plus, if you're the holder of the bond in the Eurozone, you're getting paid the coupons in Euros, unlike Apple dividends which are paid in U.S. Dollars and have to be converted into Euros -- so you're also avoiding any currency risk.

    Add: One additional point. Note that the 'mid-swap yield' (essentially, equivalent to a risk premium) is 0.826%. In other words, a holder of the bond is getting a 138% higher yield from holding Apple, compared to the paltry 0.6% they can get for a bond of equivalent maturity risk free bond in the Eurozone! Crazy yields, I know, but makes perfect sense for the bond holder given how low returns are over there.
  • Reply 3 of 14
    I am not very knowledgeable in such matter. Can someone please explain me how does APPL benefits with all such debt creation in other countries, especially they have pile of monies there. Yes, I do understand the part that they are trying to get more cash there because it is dirt cheap right now and they can certain use up the cash they have there to pay up the debts when needed, which might still be cheaper than repatriate back to US, unless US government has one time repatriate holiday.

    What is Apple going to do with this new money?
  • Reply 4 of 14
    As msuberly noted, the dividend yield is about 1.85%, so paying 1.426% on the bonds, and earning 1.85% on the stock they buy with the money is almost riskless profit, and paying 2.04% on the other bond will probably yield a profit, given the historical trend of rising stock price and dividend.
  • Reply 5 of 14
    mcarlingmcarling Posts: 1,106member
    Quote:

    Originally Posted by radster360 View Post



    I am not very knowledgeable in such matter. Can someone please explain me how does APPL benefits with all such debt creation in other countries, especially they have pile of monies there. Yes, I do understand the part that they are trying to get more cash there because it is dirt cheap right now and they can certain use up the cash they have there to pay up the debts when needed, which might still be cheaper than repatriate back to US, unless US government has one time repatriate holiday.



    What is Apple going to do with this new money?



    The proceeds from the bond sale are US funds, so they can be used to pay dividends or buy back AAPL stock.  Settlement of the debt is done with foreign funds, so that money doesn't need to be repatriated to the US.

  • Reply 6 of 14

    This seems like astonishingly bad timing to me, but Apple’s one of only a handful of entities that can weather this.

  • Reply 7 of 14
    crowleycrowley Posts: 5,930member
    mcarling wrote: »

    The proceeds from the bond sale are US funds, so they can be used to pay dividends or buy back AAPL stock.  Settlement of the debt is done with foreign funds, so that money doesn't need to be repatriated to the US.
    I don't believe this is correct. If Apple is buying back shares then Apple Inc in the USA needs to be doing that. If Apple Inc wants to buys back shares then I t needs to use money that Apple Inc has, which I presume is what this bond sale is all about - Apple Inc selling bonds in euros. And if Apple Inc are selling then it needs to be Apple Inc that pay back on that debt, which means they would need to use US-held cash, or repatriate money to the U.S. from elsewhere.

    Apple can't use a bond sale and debt payment to transfer profit between EU subsidiaries and the USA corporate mother. Or not quite so directly at least.
  • Reply 8 of 14
    crowley wrote: »
    mcarling wrote: »

    The proceeds from the bond sale are US funds, so they can be used to pay dividends or buy back AAPL stock.  Settlement of the debt is done with foreign funds, so that money doesn't need to be repatriated to the US.
    I don't believe this is correct. If Apple is buying back shares then Apple Inc in the USA needs to be doing that. If Apple Inc wants to buys back shares then I t needs to use money that Apple Inc has, which I presume is what this bond sale is all about - Apple Inc selling bonds in euros. And if Apple Inc are selling then it needs to be Apple Inc that pay back on that debt, which means they would need to use US-held cash, or repatriate money to the U.S. from elsewhere.

    Apple can't use a bond sale and debt payment to transfer profit between EU subsidiaries and the USA corporate mother. Or not quite so directly at least.

    You're exactly right. Foreign funds cannot be used for repayment.

    We seem to go this every time AI features a story on a foreign bond issue by Apple! Maybe, in the future, they should add a sentence or qualifier to that effect in the story (along the lines of how some analysts are always "well-connected").
  • Reply 9 of 14
    mcarlingmcarling Posts: 1,106member
    Quote:

    Originally Posted by Crowley View Post





    I don't believe this is correct. If Apple is buying back shares then Apple Inc in the USA needs to be doing that. If Apple Inc wants to buys back shares then I t needs to use money that Apple Inc has, which I presume is what this bond sale is all about - Apple Inc selling bonds in euros. And if Apple Inc are selling then it needs to be Apple Inc that pay back on that debt, which means they would need to use US-held cash, or repatriate money to the U.S. from elsewhere.



    Apple can't use a bond sale and debt payment to transfer profit between EU subsidiaries and the USA corporate mother. Or not quite so directly at least.



    Whether or not you believe it is irrelevant.  Apple USA gets the proceeds from the bond sale and can use non-US funds to pay the debt -- so long as the term of the bonds is long enough that the IRS considers the issue and settlement of the bonds to be separate transactions.

  • Reply 10 of 14
    crowleycrowley Posts: 5,930member

    If true, that's stupid.  I still don't think it's true.  Everything I've read suggests it is not.

  • Reply 11 of 14
    Quote:

    Originally Posted by Crowley View Post

     

    If true, that's stupid.  I still don't think it's true.  Everything I've read suggests it is not.




    We're talking about government rules.  Of course they're stupid.

     

    Anyway, it's plainly obvious that Apple are using the bond revenue for stock buyback.  There is no other way they could be buying back as much stock as they have been.

  • Reply 12 of 14
    hmmhmm Posts: 3,405member
    Quote:

    Originally Posted by Crowley View Post

     

    If true, that's stupid.  I still don't think it's true.  Everything I've read suggests it is not.




    It's not actually true. Subsidiaries can't actually pay off the debts of the parent company in that way. He is full of crap.

  • Reply 13 of 14
    Quote:

    Originally Posted by mcarling View Post

     



    The proceeds from the bond sale are US funds, so they can be used to pay dividends or buy back AAPL stock.  Settlement of the debt is done with foreign funds, so that money doesn't need to be repatriated to the US.




    Hmmm...I don't think this makes sense. 

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