Apple to Sell Debt to Help Fund $300 Billion Capital Return

Updated on
  • Unsecured bond sale will fund stock buybacks and dividends
  • The iPhone maker is about three-fourths through its program

Shoppers at the Upper West Side Apple store in New York.

Photographer: Michael Nagle/Bloomberg

Apple Inc., looking to fund stock buybacks and dividends, sold $7 billion of bonds even as proposed new tax laws may leave it awash in cash it previously couldn’t use. 

The iPhone maker on Monday sold notes in six parts. Apple has been the second-most active U.S. non-financial issuer of debt this year behind AT&T Inc., data compiled by Bloomberg show. Kristin Huguet, a spokeswoman for Apple, didn’t return messages seeking comment.

Its bond sale comes shortly after House Republicans unveiled their proposal for overhauling U.S. tax law, which would charge companies up to a 12 percent tax on the overseas profit they’ve earned, compared with the 35 percent they would pay if they brought that money back home now. Companies with high cash holdings overseas, typically in the tech and pharmaceutical industries, may end up with access to billions of extra dollars that they would otherwise have to keep abroad, meaning Apple could be borrowing at a time when it doesn’t need more cash.

Apple’s note sale underscores how uncertain companies and investors are about how the U.S. tax law will be changed. As of Sept. 30, Apple was sitting on $268.9 billion in cash and marketable securities, 94 percent of which was outside the U.S., Chief Financial Officer Luca Maestri said on an earnings call. The company is constantly selling bonds to fund its share repurchases and dividends, said Noel Hebert, an analyst at Bloomberg Intelligence.

“You can’t put everything on hold on the hope that tax policy comes through,” Hebert said. “If you end up with tax policy that’s supportive, maybe they’ll come back to take down some of the debt or fund a huge dividend.”

Outlook Unclear

It is still unclear how tax laws will be changed. Senator John Cornyn of Texas, the No. 2 Republican leader, said on Monday that his chamber would be starting over when it came to writing a bill, and would not use the House Republicans’ proposal as a starting point. And the House Ways and Means panel began a four-day series of meetings today to consider amendments to the bill that was released last week.

Apple has “always been a very strong advocate for comprehensive corporate tax reform,” Maestri told Bloomberg in a telephone interview last week. Repatriation could allow Apple to accelerate the pace of its capital return program, he said at a conference in February.

‘Looking Forward’

Speaking in Newport Beach, California on Monday, Treasury Secretary Steven Mnuchin said that Apple Chief Executive Officer “Tim Cook and many other CEOs, they’re looking forward to bringing their cash back to the United States and investing it here.”

Apple’s latest sale comes at a time it has when it has been uncharacteristically active. The company sold $5 billion of debt two months ago to fund its capital return program just before unveiling its 10-year anniversary iPhone. That came on top of its first bond sale in Canada for C$2.5 billion ($1.96 billion), also for share buybacks and dividends.

“It’s unusual for Apple to be so active in the debt markets in the second half of the calendar year,” CreditSights analyst Jordan Chalfin said in a report Monday. “Apple is clearly not waiting on tax reform.”

The longest portion of the fixed-rate unsecured bonds Apple sold are $1.25 billion of 30-year securities that yield 1 percentage point more than Treasuries, down from initial price talk of around 1.125 percentage points, according to a person with knowledge of the matter, who asked not to be identified as the details are private. The company can buy them back at face value after six months.

Apple is more than three-fourths of the way through a program that’s returning $300 billion of capital to shareholders by the end of March 2019. It expanded that program earlier this year by $50 billion, and lengthened the time frame for it by four quarters. As of the end of latest quarter, it had $103.7 billion of long-term debt, including payments due on those obligations in the near term.

Bank of America Corp. and Goldman Sachs Group Inc., which were lead managers on the bond sale along with JPMorgan Chase & Co., declined to comment. S&P Global Ratings gave the debt its second-highest rating of AA+.

The bond sale, at least Apple’s eighth this year, came just days after Apple briefly became the U.S.’s first $900 billion company as customer demand for the new iPhone X prompted it to predict record sales of at least $84 billion in the quarter ending in late December.

— With assistance by Brian W Smith, Lynnley Browning, and Anousha Sakoui

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