Apple Sells $12 Billion of Bonds to Keep Cash OverseasSarika Gangar and Matt Robinson
Apple Inc. issued $12 billion of dollar-denominated bonds as the iPhone maker seeking to reward shareholders locked in a cheaper alternative than overseas cash that’s subject to repatriation taxes.
The sale included $2.5 billion of 3.45 percent, 10-year notes that pay 77 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The spread was less than the approximately 90 basis points that was marketed earlier today, according to a person with knowledge of the transaction.
By taking on more debt, the world’s largest technology company by stock-market capitalization is sticking to its efforts to keep its U.S. tax bill low. Borrowing costs in the bond market are much lower than the levy on any money repatriated on Apple’s balance sheet that’s considered to be held overseas. Of the $151 billion Apple has in cash and marketable securities, about 88 percent is held offshore, the company said on an April 23 earnings call.
“They don’t want to pay the tax to bring it back to the U.S.,” said Matthew Duch, a fund manager at Calvert Investments in Bethesda, Maryland, which oversees more than $12 billion in assets, and was considering buying part of today’s offering. “The market is giving them very cheap money.”
The company’s strong growth and international expansion in recent years has built up “substantial offshore cash balances,” Luca Maestri, who will soon take over as Apple’s chief financial officer, said on the earnings call.
“To repatriate our foreign cash under current U.S. tax law, we would incur significant tax consequences and we don’t believe this would be in the best interest of our shareholders,” Maestri said.
Apple returned to debt markets to fund a $30 billion increase to its shareholder-reward program that also prompted its unprecedented $17 billion offering last year. Kristin Huguet, a company spokeswoman, didn’t return a call requesting comment on the sale.
The company said last week it will seek to raise an amount this year “similar” to what it issued in 2013. That would about double its debt load to put it within the 20 largest U.S. corporate borrowers excluding financial issuers and place it in the company of bond-market stalwarts Procter & Gamble Co. and Deere & Co., according to data compiled by Bloomberg.
Deutsche Bank AG and Goldman Sachs Group Inc. managed the offering for the Cupertino, California-based company, said the person, who asked not to be identified, citing lack of authorization to speak publicly. Part of the proceeds will be used for dividend payments, Apple said today in a regulatory filing. The company said last week it will increase its quarterly dividend by about 8 percent.
Apple issued $2 billion of 2.1 percent, five-year securities at a relative yield of 37.5 basis points, Bloomberg data show. That’s down from about 50 basis points initially, according to the person.
The bonds are expected to be rated Aa1 by Moody’s Investors Service, Bloomberg data show.
The company sold $1.5 billion of 1.05 percent, three-year debentures to yield 18 basis points more than benchmarks, Bloomberg data show. The bonds were initially marketed at a spread of about 30 basis points, the person said.
The company also issued $3 billion of 2.85 percent, seven-year notes at 60 basis points, Bloomberg data show. That’s down from about 75 initially marketed, according to the person. The $1 billion of 4.45 percent, 30-year bonds paid 100 basis points, down from a range of 115 to 120.
The $1 billion each of three-year, floating-rate notes priced to yield 7 basis points more than the three-month London interbank offered rate, and five-year floaters paying a 30 basis-point spread. Libor, the rate at which banks say they can borrow from each other, was set today at 23 basis points, Bloomberg data show.
Last April, Apple locked in borrowing costs that were near all-time lows. The deal’s largest piece, $5.5 billion of 10-year bonds, were sold with a 2.4 percent coupon to yield 75 basis points more than similar-maturity Treasuries, Bloomberg data show.
Goldman Sachs and Deutsche Bank also led that deal. Apple, which is rated AA+ by Standard & Poor’s, paid $53.25 million in underwriter fees on the six-part offering, according to a regulatory filing at the time.
The bonds due 2023 traded at 93.1 cents on the dollar to yield 3.29 percent at a spread of 62 basis points more than benchmarks yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Yields on AA rated, dollar-denominated securities reached 2.48 percent yesterday, up 52 basis points from a year ago, Bank of America Merrill Lynch index data show. A basis point is 0.01 percentage point.
Last year’s sale came more than nine years after the company cleared its balance sheet of bonds when the $300 million of 6.5 percent, 10-year notes it sold in February 1994 matured, Bloomberg data show.
Were Apple to double its $17 billion debt load, which ranks it as the 56th largest U.S. corporate issuer, it would rise to 16th, surging past Sprint Corp.’s $33 billion outstanding and less than P&G’s $36.4 billion and Deere’s $34.4 billion, Bloomberg data based on latest company filings show.
The figures compare with a median $9.4 billion among U.S. corporates with a market capitalization above $25 billion, Bloomberg data show. Apple’s leverage, or debt to earnings before interest, taxes, depreciation and amortization is 0.29 times, compared with a median 1.61 times.
Verizon Communications Inc.’s $49 billion offering in September unseated Apple’s 2013 deal as the largest offering on record, Bloomberg data show.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- Under Fire and Losing Trust, Facebook Plays the Victim
- Uber Victim Stepped Suddenly in Front of Self-Driving Car
- Fed Lifts Rates, Steepens Path Through 2020 for More Hikes
- YouTube Bans Firearms Demo Videos, Entering the Gun Control Debate
- Facebook Just Lost More Than Tesla's Entire Market Cap in Two Days