Despite prospects of a U.S. repatriation-tax holiday, the cash-rich Apple is planning to sell $10 billion of bonds in its first trip to the bond market in 2017
Source: Investor’s Business Daily
Apple is selling $10 billion of notes in its first trip to the bond market in six months, becoming the second cash-rich technology company to sell debt this week despite prospects of a U.S. repatriation-tax holiday.
The iPhone maker may sell debt in as many as nine parts with up to six different maturities, according to a regulatory filing. The longest portion may be a 30-year bond. Apple (AAPL) will use proceeds for general corporate purposes, which can include share buybacks and capital spending. Microsoft sold $17 billion of bonds earlier in the week, capping the busiest month for U.S. investment-grade corporate issuance ever.
Apple has become a bond market regular in recent years, selling debt at least annually since 2013. Though its debt load has grown, its $246 billion cash pile means the company can maintain credit ratings that are just one step below the top grade.
“They have great earnings, and then they issue debt,” said Tom Murphy, a money manager at Columbia Threadneedle. “They commit to having a net cash position, so it’s hard to get too worked up.”
The $1 billion, 30-year bond may yield about 1.15 percentage points more than Treasuries with similar maturities, according to a person familiar with the matter, who asked not to be named because the deal is private. That’s down from initial discussions of around 1.4 percentage points. Goldman Sachs (GS), Deutsche Bank (DB) and JPMorgan (JPM) are managing the sale.
Ninety-four percent of Apple’s cash stockpile was held overseas at the end of last year, filings show. To bring back the money under current laws, the Cupertino, Calif.-based company could have to pay a tax rate of 35%, a tough sell when it can pay interest rates of less than 5% on new bonds. It raised about $24 billion in 2016 for programs such as share buybacks.
Analysts have said that optimism around a potential repatriation tax holiday following President Trump’s election could cause some of the biggest cash hoarders to hold off on issuing new debt. But with Congress yet to introduce legislation, companies are once again turning to the bond market, where rates remain near historic lows.
Moody’s Investors Service rated the new Apple bonds Aa1, the second-highest rating. S&P Global Ratings gave the notes an equivalent AA+ grade.
Treasuries gained, with the 10-year yield dropping one basis point to 2.46%.