Apple issues $8B bond sale as debt market nears all-time low
Apple on Monday launched its latest debt deal to fund corporate operations like share buybacks and dividends, with reports claiming the offering stands at $8 billion.
The debt deal is Apple's first offering of bonds since September 2019.
The Cupertino tech giant plans to issue notes that mature in 2023, 2025, 2030 and 2050, according to a preliminary prospectus issued to the Securities and Exchange Commission. Goldman Sachs, Bank of America Securities, JPMorgan and Morgan Stanley are listed as underwriters on the debt deal.
Citing a source at a financial institution, CNBC reports Apple is looking to sell $8 billion in debt as 10 year yields hovers near an all-time low of 0.637%.
Apple is offering $2 billion in 0.75% notes set to mature in 3 years, $2.25 billion in 1.125% notes due in 5 years, $1.75 billion in 1.65% notes maturing in 10 years, and $2.5 billion in 2.65% notes due in 30 years.
Apple in its filing did not specify how much it is trying to raise but said that the proceeds would be used for general corporate purchases, including share buybacks, dividends, working capital, acquisitions and to repay debt.
The company last offered bonds in September 2019, also for general corporate purchases.
Shares of Apple were trading at $293.16 on Monday, up 1.41% on the day.
The debt deal is Apple's first offering of bonds since September 2019.
The Cupertino tech giant plans to issue notes that mature in 2023, 2025, 2030 and 2050, according to a preliminary prospectus issued to the Securities and Exchange Commission. Goldman Sachs, Bank of America Securities, JPMorgan and Morgan Stanley are listed as underwriters on the debt deal.
Citing a source at a financial institution, CNBC reports Apple is looking to sell $8 billion in debt as 10 year yields hovers near an all-time low of 0.637%.
Apple is offering $2 billion in 0.75% notes set to mature in 3 years, $2.25 billion in 1.125% notes due in 5 years, $1.75 billion in 1.65% notes maturing in 10 years, and $2.5 billion in 2.65% notes due in 30 years.
Apple in its filing did not specify how much it is trying to raise but said that the proceeds would be used for general corporate purchases, including share buybacks, dividends, working capital, acquisitions and to repay debt.
The company last offered bonds in September 2019, also for general corporate purchases.
Shares of Apple were trading at $293.16 on Monday, up 1.41% on the day.
Comments
Look at the interest rate for the 3 year note, it's 0.75%?
So somebody who invests in that bond will only get 0.75% after parking their money for 3 years? Does that sound worthwhile?
Why don't they just take their money and park it in a bank account or something that will grant them a lot higher interest rate than 0.75%?
Institutions who have billions laying around to invest, why don't they just invest in AAPL stock and make a killing instead of a lousy 0.75% after tying up their money for many years?
But you are not going to find 0.75% interest in a savings account right now. (You will of course get more than that in dividends alone from Apple stock though.)
Ally for example has 1.50% currently in their regular savings account.
Buy AAPL stock – like any stock, there’s a risk that it could be worth less than you paid for it when you need to get the cash back?
You could park it in a bank account but to be honest, but Looking at the way the banking system is run, Apple is less likely to go bust.
If Apple has "repatriated" and paid the (relatively) minimal corporate taxes due that Apple lobbied for and as has been reported they did, why would they issue bonds at all for repurchasing stock. Simply pay with the cash on hand already taxed. The obvious answer is they have not either repatriated it or paid any taxes on it.
They can't use it for stock repurchases.
What I don't understand is, why does Apple need to borrow at all? Certainly they have 8B in change somewhere in a couch in Cupertino.
"1.65% notes maturing in 10 years,"
I guess this option sounds good to some people. Still a ripoff.
https://www.ped30.com/2020/05/04/apple-app-store-evercore/
Apple's original statement, from about two years, stated that they would repatriate the cash and would pay about $38billion on it over time. I say over time, because the repatriation deal allows for companies to spread the tax payments out over eight years with the bulk of the payments coming in the later years, without incurring any penalties. Apple makes a lot of money, so the level of this repayment is not going to make any difference to their cash levels. This is very interesting because it's in line with their strategy of becoming cash neutral (which doesn't mean they're going to blow the whole lot, just that they want to keep cash at a certain level because having too much of it is a waste).
There was never a requirement to 'repatriate' any of the money; the requirement was to pay tax on it. So is Apple paying any tax on it? Hard to tell without looking at their financial statements, so let's have a look:
https://www.apple.com/newsroom/pdfs/FY20_Q2_Consolidated_Financial_Statements.pdf
In the supplemental cash flow disclosures, there's a tax payment of $7.5billion. Same quarter, previous year that was $9.4bilion. That's a lot of tax, so my guess, which is at least as good as yours, would be that a fair chunk of that is for the repatriation tax.
Er … say what now? (⊙_☉)
Apple has said (and has been saying for years) that they're aiming for a cash neutral position: maintaining a level of cash on hand year after year that they will adjust for inflation and debt. What they're doing is leveraging cheap debt to finance their taxation and investor strategy, while leaving the bulk of their cash for the important stuff like R&D and buying talent. This way, they can keep their cash levels fairly stable, which puts them in a much better position to deal with events such as global pandemics.
If they used their cash to pay out dividends, this would mean large drops in cash-on-hand. Instead, they use cheap loans to spread the cost of the buybacks and dividends over a long period of time: cash stability; that's the name of the game.
It's not rocket science; I do the same thing myself. I could've bought my last iPhone outright. But when someone's offering an interest free loan to buy it, then what's the point of blowing the cash? I could use it to make even more cash, or save it for an emergency.
A friend of mine had a bit of a windfall recently. He thought about using the money to pay off his mortgage; instead he remortgaged at a ridiculously low rate. The cash is now making considerably more money than his interest payments.
The trick is to make sure that you always have enough on hand to pay off the loan you've taken out.
Just because you have the money, doesn't mean you should waste it.
This was never a requirement, though the tax payments on their financials indicate that they're doing what they said they would do and pay $38billion in tax on it.
"No company"? And how many trillion-dollar global operations have you run recently? I strongly suspect the number is between zero and zero.
At one point in its history, this company was about a fortnight away from bankruptcy. If I were you, I wouldn't pretend to be an expert on the amount of cash that any company that size should hold. What if there's a massive global crash? What if they suddenly found themselves with a huge payout in lawsuits? Apple is a huge company, financially speaking, and that means the financial problems they may face are as equally huge.
Besides which, the company says they're 'aiming for cash neutrality'; this is something you ease towards to make sure you can cope with unforeseen events; not something you do quickly just to get it done. That's the way the UK government handles stuff, and it never turns out well.
Simple answer: Apple buys companies that build on its ongoing strategy. They don't buy companies just to add a few zeros to the sheet. Tesla has only just started making a profit, and doesn't really solve the fundamental problem with cars: they cost a lot to buy, cost a lot to maintain, cost a lot to run and cost a hell of a lot to store I don't think Apple's plan is to necessarily add to the problem, so it might be a long time before we have any real idea what they're working on. I suspect though, that they have no intention of selling cars.
Smoke and mirrors only work till a good wind blows away the smoke.
Then you go on to proclaim how foolish and irresponsible they are being. I think you and I probably have similar experience in running multinational corporations.
So George, you want on a long-winded multi paragraph reply making believe I was wrong but coming to the same conclusion as I did in my one paragraph.
"If Apple has "repatriated" and paid the (relatively) minimal corporate taxes due that Apple lobbied for and as has been reported they did, why would they issue bonds at all for repurchasing stock. Simply pay with the cash on hand already taxed. The obvious answer is they have not either repatriated it or paid any taxes on it.
They can't use it for stock repurchases."
I can only assume you are perhaps aren't clear on cash neutral since you referenced it a number of times while backhandedly agreeing with my basic premise: They haven't paid the taxes that would allow them to use that cash for most business purposes, thus they borrow.
If you know what is meant by Apple's cash-neutral intent, which I have assumed you do, then you should also understand the part that debt will play. Apple's debt was always a temporary solution to avoid repatriation taxes, and IMO the company wouldn't need to continue issuing paper now that tax reform has passed unless they have not paid those taxes and have no intention to in the relatively near future. Sometimes the simple answer really is the right one.
Eventually Apple intends to owe as much in debt as they have in cash. Right now they owe debt of approx. $120B. That's up $60Billion in the past five years alone. This new paper issue brings it close to $70Billion, leaving Apple with well under $100B in net cash today. They are getting there on cash-neutrality. At this rate and with $90B to go another 9 years can do it.
Sometime back we had a number of articles here and elsewhere that said Apple couldn't find good ultra-safe investment opportunities and sees only a 1% return on their free cash via their Braeburn Investments subsidiary. I don't believe it, (and that's a separate issue anyway where some evidence says otherwise), but if you assume it's true as Apple states then trading debt for a return on cash investment is a wash or loss. They can't make more money investing the cash than they will have spent on borrowing against it, in fact less. So why do it? Again it comes back to it's cheaper to borrow than pay the taxes that would be due if it were "brought home", which was my initial claim you've taken issue with.
I don't claim to understand why they've chosen cash neutral to begin with and the method of getting there, tho the experts say it's because Apple has far more cash than they have any use for and debt is a good thing for the company (? Really, I don't understand), but I'll keep reading and eventually it may all make more sense.
Remember my rainy-day comment, far more cash than they could ever need? When I listen to the experts and professionals, as you suggest I do, they say the same thing, far too much cash than they could have any use for, and taking on debt is one way of disposing of the excess. A more direct stock dividend or spending it on stock repurchases are others. What they don't (generally) say is that Apple is being foolish and irresponsible in their methods. So do we listen to George or the experts and professionals?
"Average Joe" thinks all these corporations have now paid the taxes due to the US and with the reduced rate have now hustled to bring money back to the US and invest in people and plant. There are so many intentional loopholes that IMO the only thing that happened is more of the tax burden was shifted from corporate to individual taxpayers. Money is still "overseas" untaxed, technically in US bank accounts but whatever, and corporations are still dragging their feet on bringing it all home. It does not accomplish the goal of increasing investments in US factories and jobs as was stated to the public. Rich get richer and still do so by fooling (more lying to IMO) the rest of us.
Those who have no point and no argument have to invent things to argue against.