Apple issues $6.5B bond to fund buyback, acquisitions

Posted:
in AAPL Investors
Apple is taking advantage of historically low interest rates with a $6.5 billion bond sale that will go toward corporate initiatives like stock buybacks, payment of dividends and acquisitions.

SEC


Announced in a filing with the U.S. Securities and Exchange Commission, the $6.5 billion bond is broken into four parts set to mature between 2028 and 2061.

Apple sold $2.3 billion of 1.4% bonds scheduled to mature in 2028, $1 billion of 1.7% bonds that will mature in 2031, $1.8 billion of 2.7% bonds that mature in 2051 and $1.4 billion of 2.85% bonds that mature in 2061. Interest on the 7-, 10-, 30- and 40-year notes will be paid semi-annually on Aug. 5 and Feb. 5 of each year beginning in February 2022.

The company expects proceeds from the sale to come to about $6.46 billion after deducting underwriting discounts and our offering expenses.

Apple in today's filing said funds raised will be used for "general corporate purposes" including stock repurchases and dividend payouts, funding for working capital, capital expenditures, acquisitions and repayment of debt.

Goldman Sachs, BofA Securities and Barclays are running the offering.

As noted by Barron's, Apple had $113.8 billion in long-term debt outstanding on June 30, counting $14 billion raised in a bond offering in February.


Read on AppleInsider
«134

Comments

  • Reply 1 of 71
    genovellegenovelle Posts: 1,284member
    I’m not understanding the debt angle. They tend to maintain around 200 million in cash, so why pay interest on debt. Unless it provides tax savings somehow. 
    GeorgeBMac
  • Reply 2 of 71
    XedXed Posts: 1,068member
    genovelle said:
    I’m not understanding the debt angle. They tend to maintain around 200 million in cash, so why pay interest on debt. Unless it provides tax savings somehow. 
    I hold plenty of debt that I could pay off with right now without affecting how I live my life, but I don't do that because the interest I pay on that debt is considerably lower than the what I earn per year on my investments. One particularly attractive loan is an LAL (or liquidity access line) against my stocks. By the time it come due the value of holding is likely to be many times higher than what I obtained the loan without having to touch my investment. In fact, at the average S&P rate of return even my annual dividends will likely increase to a point where I'll be able to pay back the loan without ever having to sell a single share.
    JWSClorca2770Rayz2016jdwapplguyAlex_Vcornchip
  • Reply 3 of 71
    I believe this is all very complicated tax law and accountant related.  Apple provides dividend and share buybacks. Providing the money for that is taxed on average at X. But borrowing the money reduces the tax burden of that dividend and share buyback, we'll say, by half. When you factor in the yield paid to bond holders, half X + yield = less than the full tax of just using your cash on hand. This is the benefit of cost of borrowing money being VERY low. 

    The other possibility is simply the cost of money being low, and it is VERY low. Apple gets to keep their cash/easily converted securities on hand while using the low interest rate/yield bond(debt) to continue to fund increasing operations. I'd liken it to this: you have a million dollars. You have a 500,000 dollar mortgage at 2% APR. Would you take half that million to pay off the debt (saving 2%) when the cash itself will equal a 3% return in savings?  

    Alex_V
  • Reply 4 of 71
    22july201322july2013 Posts: 2,597member
    genovelle said:
    I’m not understanding the debt angle. They tend to maintain around 200 million in cash, so why pay interest on debt. Unless it provides tax savings somehow. 
    I think you meant 200 billion, not 200 million. But what's the difference?

    https://www.cnbc.com/2021/01/27/apple-q1-cash-hoard-heres-how-much-apple-has-on-hand.html <--
    edited July 30 ArchStantoncornchip
  • Reply 5 of 71
    genovelle said:
    I’m not understanding the debt angle. They tend to maintain around 200 million in cash, so why pay interest on debt. Unless it provides tax savings somehow. 
    I think you meant 200 billion, not 200 million. But what's the difference?

    https://www.cnbc.com/2021/01/27/apple-q1-cash-hoard-heres-how-much-apple-has-on-hand.html <--
    LOL, yea 200 million for a 350 billion revenue company isn't enough by factor of A LOT. 
    Apple doesn't maintain all cash, fyi. I think gross cash on hand is about 80billion. The rest (a lot) is is in easily converted securities (probably T notes/bills/bonds or corporate bonds).
  • Reply 6 of 71
    davidwdavidw Posts: 1,346member
    genovelle said:
    I’m not understanding the debt angle. They tend to maintain around 200 million in cash, so why pay interest on debt. Unless it provides tax savings somehow. 
    One angle is that most of Apple cash balance are in overseas account and only been taxed overseas. If Apple were to bring that cash back to the US, they have to pay what US tax is owed, before they can use it to back back shares, use it for dividend payout or for acquisitions. 

    The other angle is that AAPL dividend payout is now about .6% at $145 a share. Which would be near the historic low as AAPL share price is near its historic high. So even now, with the shares Apple buys back, they save .6%, which goes toward paying the interest on the money used for buy backs. Apple do not have to pay out a dividend for the shares they buy back.


    I remember a while back when Apple borrowed money with an interest rate that was a little less that the percent of the dividend payout (at the time). So for every share they bought back with borrowed money, they were making money by not having to pay the dividend on those shares. In the mean time, the cash they didn't have to use to buyback shares was still in an account collecting some interest. The interest collected might not even beat inflation, but its something.  The cash would eventual be use to pay back the loan.

    I did the same thing with a margin account backed mainly by my AAPL stock holding. I would borrow money from my margin account at about 8% interest to pay off in full any monthly credit card debt that would had been financed at 15% to 22% interest, instead of selling any stock. In the long run, the AAPL shares that I did not sell at the time to pay off CC debt, was worth way more that the total debt it would had paid off, the interest and the interest on the interest. Now this only works with stocks or a stock portfolio that in the long run, goes up by more than the interest.

    When my friends look at my stock portfolio and inquire how did i know what stocks to buy, I always tell them, it's not a matter of knowing what stocks to buy, but knowing what stocks not to sell.  
    jdwAlex_V
  • Reply 7 of 71
    gatorguygatorguy Posts: 23,255member
    genovelle said:
    I’m not understanding the debt angle. They tend to maintain around 200 million in cash, so why pay interest on debt. Unless it provides tax savings somehow. 
    I think you meant 200 billion, not 200 million. But what's the difference?

    https://www.cnbc.com/2021/01/27/apple-q1-cash-hoard-heres-how-much-apple-has-on-hand.html <--
    LOL, yea 200 million for a 350 billion revenue company isn't enough by factor of A LOT. 
    Apple doesn't maintain all cash, fyi. I think gross cash on hand is about 80billion. The rest (a lot) is is in easily converted securities (probably T notes/bills/bonds or corporate bonds).
    Apple had $195.57 billion in cash on hand earlier this year. I didn't look into the latest results. That's different than net cash of course. 
    edited July 30 Alex_V
  • Reply 8 of 71
    BeatsBeats Posts: 2,567member
    Ok the buy back shares thing kinda makes sense but acquisitions? Just reach into your coin purse
  • Reply 9 of 71
    gatorguygatorguy Posts: 23,255member
    Beats said:
    Ok the buy back shares thing kinda makes sense but acquisitions? Just reach into your coin purse
    IMO Apple is going to be extremely cautious with acquisitions in the near future. Regulators are watching, and the antitrust lawyers are going to be out in full force. 
    cornchip
  • Reply 10 of 71
    mpantonempantone Posts: 1,610member
    Apple buys other companies for specific technological advantages to be deployed later in a long term manner -- not for immediate marketshare growth.

    All of the antitrust activity is focused around their actual customer-facing services, like the App Store. It's not about some obscure startup that Apple acquired for their search algorithm.

    Apple doesn't try to buy AMD, Marvell, Texas Instruments, Netflix, etc. They buy companies like PA Semi and Intrinsity and spend years incorporating that expertise in their own products.
    edited July 31 Rayz2016lkruppdanoxAlex_V
  • Reply 11 of 71
    mpantonempantone Posts: 1,610member
    Beats said:
    Ok the buy back shares thing kinda makes sense but acquisitions? Just reach into your coin purse
    Again, much of this is predicated on where the cash resides. Most of Apple's massive cash hoards are abroad. With current tax laws, it's expensive for Apple to bring these assets across the border back to the USA.

    Issuing a bond is a strong consideration because using someone else's money is pretty much cheaper than using your own -- at least with current interest rates.

    With COVID-19 delta variant cases exploding, Apple likely realizes that the Fed will not be motivated to hike interest rates quickly. Anti-vaxxers are probably giving Apple (and other major corporations) an extra 3-4 years on corporate bond issuance because a slowed recovery will stifle interest increases.
    edited July 31 Alex_V
  • Reply 12 of 71
    DovalDoval Posts: 40member
    So smart, Apple managment is just a cut above
    jdw
  • Reply 13 of 71
    eriamjheriamjh Posts: 1,348member
    Strange that incurring debt is better than re-patriating cash from overseas, but accounting is accounting.
  • Reply 14 of 71
    GeorgeBMacGeorgeBMac Posts: 10,494member
    A company buying its own stock is an indication that it has nothing to invest its money in -- so it's giving it away.

    Historically companies who borrowed money to pay dividends or buy back stock were viewed as failing companies.

    It is also a sign of how the U.S. has begun to gauge its economy and corporate health based on stock prices rather than fundamentals.

    ....  None of this speaks well for the future of either the U.S. or Apple.
  • Reply 15 of 71
    crowleycrowley Posts: 8,904member
    Beats said:
    Ok the buy back shares thing kinda makes sense but acquisitions? Just reach into your coin purse
    If it's cheaper to borrow than it is to draw on your investments or repatriate cash from overseas then it doesn't matter what you're spending the money on.
    cornchip
  • Reply 16 of 71
    mpantonempantone Posts: 1,610member
    A company buying its own stock is an indication that it has nothing to invest its money in -- so it's giving it away.

    Historically companies who borrowed money to pay dividends or buy back stock were viewed as failing companies.

    It is also a sign of how the U.S. has begun to gauge its economy and corporate health based on stock prices rather than fundamentals.

    ....  None of this speaks well for the future of either the U.S. or Apple.
    The old adage "the only thing constant in life is change" applies here.

    It is unwise to predict Apple's based on the financial landscape twenty or thirty years ago. If you just look at Apple itself, it is a vastly different company than it was in the Nineties. If they hadn't adapted to the changing world, they certainly would not be a $2 trillion market cap company.

    And it's not just Apple, the entire financial world has changed. We saw a blatant and stark demonstration of this last spring when the investment markets took a massive dive and various central banks worked together to thwart a depression. There's a new sheriff in town and the Fed isn't going let a repeat of 1929 happen. Some economists predicted a V-shaped recovery for the stock market and that's what actually happened due to an unprecedented central bank intervention worldwide.

    With globalization and the emergence of large foreign markets like China, multinational corporations like Apple often generate large amounts of cash elsewhere. There were relatively few companies like that fifty years ago. Repatriating cash to the USA wasn't a major issue in the Sixties.

    Apple has plenty of cash to acquire new companies but they are very choosy about what they acquire. A lot of other companies buy stuff willy nilly and many of those purchases are ill-conceived. Look at Verizon Media's stupid acquisition of AOL and it's subsequent boneheaded acquisition of Yahoo. They basically lost half of their investment, about $5 billion according to their 2018 writedown. Go ask the Verizon shareholders if they would have preferred to have received that $5 billion in dividends. 

    Apple doesn't make those kind of boneheaded acquisitions. Acquiring things for the sake of acquiring things is not a sane strategy albeit one that many companies pursue.

    Let's remember that a publicly held company's primary responsibility is to increase shareholder value.

    And it's clear that you don't understand the concept that cash can be used in multiple ways: a company can use some for dividends, some for share buybacks, some of capital investments, some for R&D, some for M&A. Just because Apple has a big pile of cash doesn't mean they need to spend ALL of it acquiring companies. In the same way, you don't need to spend everything in your checking account on videogames, lettuce, toilet paper, or socks.
    edited July 31 Alex_V
  • Reply 17 of 71
    GeorgeBMacGeorgeBMac Posts: 10,494member
    mpantone said:
    A company buying its own stock is an indication that it has nothing to invest its money in -- so it's giving it away.

    Historically companies who borrowed money to pay dividends or buy back stock were viewed as failing companies.

    It is also a sign of how the U.S. has begun to gauge its economy and corporate health based on stock prices rather than fundamentals.

    ....  None of this speaks well for the future of either the U.S. or Apple.
    The old adage "the only thing constant in life is change" applies here.

    It is unwise to predict Apple's based on the financial landscape twenty or thirty years ago. If you just look at Apple itself, it is a vastly different company than it was in the Nineties. If they hadn't adapted to the changing world, they certainly would not be a $2 trillion market cap company.

    And it's not just Apple, the entire financial world has changed. We saw a blatant and stark demonstration of this last spring when the investment markets took a massive dive and various central banks worked together to thwart a depression. There's a new sheriff in town and the Fed isn't going let a repeat of 1929 happen. Some economists predicted a V-shaped recovery for the stock market and that's what actually happened due to an unprecedented central bank intervention worldwide.

    With globalization and the emergence of large foreign markets like China, multinational corporations like Apple often generate large amounts of cash elsewhere. There were relatively few companies like that fifty years ago. Repatriating cash to the USA wasn't a major issue in the Sixties.

    Apple has plenty of cash to acquire new companies but they are very choosy about what they acquire. A lot of other companies buy stuff willy nilly and many of those purchases are ill-conceived. Look at Verizon Media's stupid acquisition of AOL and it's subsequent boneheaded acquisition of Yahoo. They basically lost half of their investment, about $5 billion according to their 2018 writedown. Go ask the Verizon shareholders if they would have preferred to have received that $5 billion in dividends. 

    Apple doesn't make those kind of boneheaded acquisitions. Acquiring things for the sake of acquiring things is not a sane strategy albeit one that many companies pursue.

    Let's remember that a publicly held company's primary responsibility is to increase shareholder value.

    And it's clear that you don't understand the concept that cash can be used in multiple ways: a company can use some for dividends, some for share buybacks, some of capital investments, some for R&D, some for M&A. Just because Apple has a big pile of cash doesn't mean they need to spend ALL of it acquiring companies. In the same way, you don't need to spend everything in your checking account on videogames, lettuce, toilet paper, or socks.

    I understand enough about liquid assets to know that they can be used wisely -- or not.

    The Fed did, as you suggest, prop up Wall Street and take it soaring to new highs.
    Unfortunately, they haven't done shit for Main Street.   Well, yeh, a few pennies did trickle down.

    And no, the primary responsibility of a company is NOT shareholder value -- particularly if that is taken to mean irresponsible use of resources.  

    The primary responsibility is responsible management which includes many things.  Few companies who were on the S&P 100 in 1980 are still on it today.  So what happened to their "shareholder value"?  For many, it is zero.

    Steve Jobs knew that the best way to build "shareholder value" was to build insanely great products.  And, to that, he built teams of "A Players" and took care of them.


    edited July 31
  • Reply 18 of 71
    tommikeletommikele Posts: 517member
    genovelle said:
    I’m not understanding the debt angle. They tend to maintain around 200 million in cash, so why pay interest on debt. Unless it provides tax savings somehow. 
    When you can earn for more on the money you borrow than the interest you have to pay, you borrow the money and effectively increase your available capital for other uses. In times of low rate debt is a vastly more preferable method of financing your business versus selling equity to raise money. Why use your own money when it cost less to use someone else’s and the interest is a deductible business expense.
    Alex_V
  • Reply 19 of 71
    doggonedoggone Posts: 302member
    I generally do not like companies acquiring debt when they have the capability to pay in cash since it creates a burden that could impact them in the future.  However I do understand that at this time borrowing is exceptionally cheap and makes financial sense to fund paybacks and dividends.

    If you look at Apple's debt history in the last decade, the debt load has been around $100-120BB.  They haven't really increased debt load just added to it when earlier bonds have been paid off. 

    The scale still freaks me out a bit but I trust Apple knows what it is doing.

    The other point is that Apple is reducing the share base. This is making each share more valuable in term of percentage of the company.
  • Reply 20 of 71
    GeorgeBMacGeorgeBMac Posts: 10,494member
    doggone said:
    I generally do not like companies acquiring debt when they have the capability to pay in cash since it creates a burden that could impact them in the future.  However I do understand that at this time borrowing is exceptionally cheap and makes financial sense to fund paybacks and dividends.

    If you look at Apple's debt history in the last decade, the debt load has been around $100-120BB.  They haven't really increased debt load just added to it when earlier bonds have been paid off. 

    The scale still freaks me out a bit but I trust Apple knows what it is doing.

    The other point is that Apple is reducing the share base. This is making each share more valuable in term of percentage of the company.

    Yes, borrowing is exceptionally cheap right now.   But to borrow and then just give it away?
    Had they given it to those 7 million unemployed or about to be evicted it would have done some good.  But they gave it to those who have little need for it.
    gatorguy
Sign In or Register to comment.