Apple Sets a New Kind of Record: $17 Billion in Debt

Tim Cook takes advantage of investors' insatiable appetite for low-risk bonds.
Employees greet CEO Tim Cook at the Apple Store in Palo Alto Photograph by Don Feria/Apple via Getty Images

Can Apple bonds fix Apple stock?

In the week since Chief Executive Officer Tim Cook announced the company would sell a monster amount of debt, shares of Apple are up 9 percent. It’s early yet, but the record $17 billion offering—the details of which show the extremes of both Apple’s cash-rich/growth-challenged status and the global appetite for corporate debt—may be the thing that finally ends the company’s slump.

April 30 (Bloomberg) -- Goldman Sachs, which has been advising Apple on how to deal with its multibillion-dollar cash pile, and Deutsche Bank, Germany’s biggest lender, are in the lead to help the iPhone maker sell bonds for the first time in 17 years. Cory Johnson reports on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Apple has a stupefying $145 billion of cash on its balance sheet. Shareholders, nervous about slowing sales of iPhones, have been putting pressure on the company to start forking over some of those profits. So on April 23, Cook said he would boost dividends and buybacks up to a total of about $100 billion through 2015. Most of Apple’s cash is sitting overseas, though, and with interest rates at record lows, it’s cheaper for Cook to borrow money than to pay the taxes on repatriated profits.

That’s why Apple is selling $17 billion of bonds today, in the largest such offering in U.S. history. The debt is being issued in six parts, with maturities ranging from three to 30 years. It looks to be particularly well timed, as borrowing costs are near record lows. Yields on almost $20 trillion of government bonds have fallen to less than 1 percent; that’s helped corporations borrow at about 3.15 percent on average, according to the Bank of America Merrill Lynch Global Corporate & High Yield Index.

Apple, being Apple, will get better-than-average rates. Its $5.5 billion of fixed-rate, 10-year notes may have a yield of just 75 basis points (hundredths of a percentage point) over the benchmark U.S. Treasuries, Bloomberg News reported.

Tapping debt isn’t a cure-all for Apple’s problems. Two big ratings agencies, Moody’s and Standard & Poor’s, say they’re concerned with Apple’s exposure to fickle consumer trends and have given the company a second-tier credit label—even though Apple has more cash than all AAA-rated corporate borrowers combined. The company’s one-year likelihood of default, as calculated by Bloomberg, is 0.0018 percent. That’s low, but Microsoft, Google, and even Yahoo! are considered safer.

Apple shares rose after details of the debt were published today. One man who has signed on to Apple’s comeback: Anisher Usmanov, the richest man in Russia and the 35th-wealthiest person on the Bloomberg Billionaires Index, who said he has recently invested $100 million in Apple because it is underpriced.

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