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Categorized | Capital Markets

Apple cleans up with $17bn US bond issue

Posted on April 30, 2013


Apple sold bonds worth $17bn on Tuesday, the world’s largest corporate debt sale, as the iPhone maker raised capital to finance a $100bn cash return to shareholders.

People close to the blockbuster deal said demand for the bond sale reached $52bn as investors from around the world scrambled to take a slice of Apple’s first debt offering since 1996.

    Apple has set several corporate records. It recently regained its position as the world’s most valuable company when it overtook ExxonMobil. Apple’s return of cash, which the bond issue will finance, includes the largest share buyback in history, worth $60bn. And last year it joined an elite group of companies whose market value made up more than 4 per cent of the S&P 500.

    Apple, which had no debt before Tuesday’s sale, has taken advantage of low interest rates to fund its return of $100bn to shareholders over the next three years. The cash splurge is designed to appease investors concerned about slowing sales growth and comes a week after Apple reported its first year-over-year drop in net income in almost a decade.

    While Apple has $145bn of cash on its balance sheet, only $45bn is held in the US and repatriating foreign reserves would be costly due to tax implications.

    “This bond is being pitched to the globe,” said Adrian Miller, director of fixed income strategy at GMP Securities. “With several tranches, including a floating-rate component, and with the high credit ratings, this bond caters to absolutely every fund manager.”

    The biggest global corporate bond offering previously was the Roche Holding’s $16.5bn sale in 2009, followed by France Telecom with a $16.4bn deal in 2001.

    Apple’s issue also surpassed Abbvie, the pharmaceutical group, which completed an offering of $14.7bn last November.

    “Investors are always looking for names which they don’t already have exposure to. When you see a new high-quality issuer like Apple, that gets people’s attention.” Jay Mueller, portfolio manager at Wells Capital.

    “As a bond investor you don’t want to buy debt which is being used to fund share buybacks, but in the case of Apple, it’s a drop in the ocean compared to the size of their overall cash holdings,” said Michael Kastner, principal at Halyard Asset Management.

    The six-part offering from Apple included benchmark maturities of three-year, five-year, 10-year and 30-year fixed rate bonds, along with three-year and five-year floating rate notes.

    The three-year fixed tranche priced at 20 basis points over the benchmark Treasury yield, with the five-year bond at 40bp, the 10-year at 75bp, and the 30-year at 100bp. All fixed tranches came in tighter than levels where bankers were pitching the bonds earlier on Tuesday. The 3- and 5-year floating rate tranches were sold at 5bp and 25bp over the London Interbank Offered Rate, respectively.

    Apple’s debt offering will push the total level of investment grade issuance for April beyond $100bn, making it the strongest April for debt sales since 2008, and the second largest since January’s $137bn in offerings.

    “April has exceeded expectations in the IG new issue market with many news worthy transactions, large transactions and Yankee names,” said Edward Marrinan, head of macro credit strategy at RBS Securities. “We anticipate this week to close out the month and start May off with solid issuance of $25bn. The total volume for the month of May is estimated to be in the context of $100bn plus.”