Apple Raises $3.5 Billion in Bond Market to Reward Shareholders

Apple Inc. sold $3.5 billion of bonds one month after issuing $12 billion of debt as the iPhone-maker takes advantage of low interest rates to seek more cash for its shareholders.

The company issued the securities by reopening three notes it sold in February, according to a regulatory filing on Thursday. Proceeds will also be used for working capital, acquisitions and debt repayments.

Joe Mayo, the head of credit research at Conning, a global insurance investment manager with about $92 billion under management, said Apple has historically been able to plan offerings around the times when interest rates hit lows.

“Apple is really sharp when it comes to the best times to come to market,” Mayo said. “I would see this as a signal that the market is open and that companies with strong financial profiles will have no problems bringing in new issues.”

Yields on 10-year Treasury bonds held near the lowest in a week Thursday, a day after the Federal Reserve said threats to global economic growth mean it will raise interest rates more slowly than previously anticipated.

Overseas Cash

Apple has been tapping credit markets to reward shareholders instead of repatriating overseas cash, which would be taxed by the U.S. The combination of low interest rates and strong demand for blue-chip names makes it an ideal time for Apple to raise money, said Andrew Brenner, head of international fixed income at National Alliance Capital Markets in New York.

“They’re taking advantage of a situation,” Brenner said. “A lot of Apple’s cash might be at the Wells Fargo bank in San Francisco, but it’s in an overseas account. It’s cheaper for them to go back into the marketplace.”

Investors have shown an appetite for Apple’s bonds sold in February. The company’s 4.65 percent notes maturing in 2046, which were issued at 99.4 cents on the dollar, were trading at 107 cents at 4:58 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The company’s longest-dated maturity to reopen is this 30-year bond, which has an existing size of $2.5 billion, the company said in the filing.

Don’t Buy

The $1.5 billion 30-year reopening will yield 1.55 percentage points above comparable government debt, according to a person with knowledge of the matter who asked not to be identified because the information is private. That’s down from initial price discussions in the 1.65 percentage-point to 1.7 percentage-point range. Bank of America Corp., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. managed the sale.

Jordan Chalfin, a senior analyst at Creditsights Inc., told clients to skip the reopening in a note Thursday. He said his firm has been bearish on Apple’s long bonds given volatility in the consumer electronics sector, although there was some value in last month’s offerings.

“It’s just a lot less attractive,” Chalfin said. “When they came to market a month ago, some of the bonds, especially the front-end, looked attractive. The new issue concessions were a lot smaller.”

This is Cupertino, California-based Apple’s sixth multi-billion dollar offering since 2013.

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