Cash-Rich Tech Companies Can’t Help Tapping U.S. Debt Markets

  • Google sold $2 billion of 10-year notes Tuesday to repay debt
  • In last week, Microsoft and Apple have also sold bonds

Technology companies from Apple Inc. to Microsoft Corp. have sold more than $100 billion of debt this year even as they sat on more than half a trillion dollars of cash. They did it for two reasons: they wanted to avoid paying taxes, and because they could.

Bond buyers fleeing negative yields on government debt in Europe and Japan are eager to snap up technology company bonds. The securities are seen as safe while offering higher income than U.S. Treasuries.

"There’s just an insatiable thirst for high-quality investment-grade paper," said Christian Hoffmann, a Santa Fe, New Mexico-based money manager at Thornburg Investment Management Inc., which oversees about $54 billion in assets.

Tech companies have sold more than $28 billion of bonds in the last week, and so far this year have already issued about the same amount as they did in all of 2015. They’re selling more debt even as overall corporate bond issuance this year has fallen about a percent to $879.6 billion.

"One of the challenges that the overall market is facing this year is that supply is actually down in an environment where there’s a tremendous amount of demand for corporate credit," said Ashish Shah, head of fixed income at AllianceBernstein, which manages more than $480 billion of assets.

Companies including Apple and Microsoft sold debt to avoid paying taxes on cash that was earned overseas, and could be taxed at a 35 percent rate if it were brought back to the U.S. Many firms that sell debt in the industry are financing moves that are friendly to shareholders, like share dividends or acquisitions.

Google Sale

In its first trip to the bond market in more than two years, Google sold $2 billion of 10-year notes to repay short-term debt on Tuesday. The debt yielded 0.68 percentage point above Treasuries. That was lower than the 0.8 percentage point discussed initially, said a person familiar with the matter who asked not to be named because the deal is private. The average spread for bonds of similar ratings and maturities is 0.91 percentage point, according to Bank of America Merrill Lynch index data.

Google had about $78 billion of cash on its books as of the end of June, according to data compiled by Bloomberg, of which about $30 billion was in the U.S.

On Monday, Microsoft sold $19.75 billion of bonds to help finance its planned acquisition of LinkedIn Corp. Last week, Apple issued $7 billion of bonds to fund dividend payments and share buybacks. Investors piled into both deals, allowing the companies to cut the interest they pay on the securities. Apple Inc., Dell Inc. and Microsoft Corp. hold three of the top five spots for total investment-grade bond offerings this year. 

Kathleen Gaffney, co-head of diversified fixed income at Eaton Vance, which manages more than $325 billion, said she’s been looking for opportunities to buy debt issued by older technology companies that “can survive in a new tech world.”

“Technology is so important to what the new economy is going to be about,” Gaffney said. “That’s an area where I think there are good sources of value.”

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