BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

Continue Reading


Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

Continue Reading


Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

Continue Reading

Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

Continue Reading


Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

Continue Reading

Categorized | Capital Markets, Financial

Crowds line up for a bite of Apple’s big bond

Posted on April 30, 2013

They may not be labelled iBonds, but investors have again fallen for the famed “buzz” of an Apple product launch.

Like the hordes of consumers who line up for hours at Apple stores seeking a new iPhone or iPad, so US and global money managers are flocking for a slice of the company’s mammoth $17bn bond offering.

    The amount of orders for the debt sale reached $52bn, and Apple entered the record books with the largest corporate bond sale in history, with a $14bn offering of fixed rate and $3bn of floating rate debt. Final pricing for the six-part deal, offering maturities from three to 30 years came late on Tuesday, with the some of the tranches coming in at tighter levels than initially anticipated.

    The iPhone maker’s blockbuster US debt sale is perfectly timed to take advantage of ultra low interest rates and strong demand from investors eager to own top quality credit in a world where defensive strategies are highly popular.

    As a new arrival in the world of US investment grade credit, Apple is generating plenty of favourable attention among money managers. With its high double-A rating, Apple will sell its bonds at low yields, but for investors what matters is that a marquee name has entered their universe.

    “Apple is a high-quality debt issuer and it’s a significant deal in terms of size,” says Jay Mueller, portfolio manager at Wells Capital. “When investors see a new name in the corporate bond market with the status of Apple, they jump on it. Portfolio managers can often have high exposure to other quality names, so a new name helps diversify their investments.”

    “This sale is guaranteed to get a lot of attention and may even bring new people to the bond market,” says Lon Erickson, managing director at Thornburg Investment Management.

    Investors are also looking beyond a usually troubling motivation on the part of Apple to sell debt, namely funding shareholder friendly activities that over time can weaken a balance sheet.

    “Certainly in the case of Apple, and other companies, debt issuance is being used to return cash to shareholders, beyond funding operations,” says Mr Mueller. “Bond investors always worry about shareholder friendly activities, but Apple has lots of cash flow, a strong balance sheet and high margins.”

    Apple is selling debt for the first time since the 1990s to finance a $100bn return of cash to shareholders over the next three years. This comes after pressure from investors, who have watched the company’s stock price drop 40 per cent from its $702.10 high last September to below $400 earlier this month. The stock climbed 2.9 per cent to $442.78 on Tuesday.

    Apple stands apart in many ways, notably with its cash pile of $145bn. Issuing debt when a company sits on such a massive amount of money may appear odd, but two-thirds of Apple’s stash sits overseas. Bringing that money home to fund buybacks and dividend payments stands to incur a US tax charge of up to 35 per cent. Issuing bonds helps Apple avoid a large tax bill, and take advantage of tax-deductible interest payments.

    “What Apple is doing is saving cash instead of getting hit by heavy taxes if they decide to repatriate the money,” says Paul Hickey, co-founder of the Bespoke Investment Group.

    It’s a theme that resonates across other large US multinational companies, particularly in the technology sector where Oracle, Microsoft and Google are debt issuers.

    “For managers who already own Microsoft, for example, this gives them a very good opportunity to add exposure to the tech sector via another credit,” says Mr Erickson.

    Mr Hickey says: “Apple is not setting up a trend here. If anything, Apple is arriving to this party late rather than early.”

    It may be tardy, but Apple is capping a huge month for investment grade issuance in the US, with April’s sales north of $100bn, the largest since 2008. For many companies, the combination of cheap borrowing costs and solid appetite for debt from investors is too hard to ignore, with the proceeds going towards buybacks and boosting dividends.

    “Corporations are really coming out of the woodwork after earnings season to sell debt and buy back stock,” says Michael Kastner, principal at Halyard Asset Management.