Apple brought a $12 bln debt offering today in 9 parts. This was the 2nd largest debt deal of this year after AB InBev’s $46bln deal. Many scratch their heads at why a company with as much cash as Apple has issues so much debt. The biggest reason is that Apple’s cash is largely held offshore, and to repatriate it would be costly from a US taxation perspective. Another reason is the pricing of the debt, due to the fact they had $26bln in orders (order book) for $12bln of bonds, which allowed them to issue at a tighter spread;
$500mm 2 year fixed printed at +60 US Treasuries (UST) versus guidance of +60 and initial price talk (IPT) of +75
$1bln 3 year fixed printed +80 UST vs matching guidance and +90 IPT.
$500mm 3 year FRN printed L+80 versus matching guidance.
$2.5bln 5 year fixed +105 UST, in from +115 IPT.
$500mm 5 year FRN L+113.
$1.5bln 7 year green bond, +135 UST vs +145 IPT.
$2bln 10 year fixed +150 UST vs +160 IPT.
$1.25 20 year fixed +190 UST versus +200 IPT.
$2.5bln 30 year fixed +205 UST versus +215 IPT.
There is strong demand for high grade debt with no tithe to the oil & gas or mining & metals sectors. Apple is rated Aa1 by Moody’s.
The following details the split between domestic and offshore of Apple’s cash hoard, quite striking:
Moody’s noted that at the current issuance trajectory, Apple could have $100bln of debt by the end of 2017. There has been a great deal of debate on the merit of a tax amnesty on foreign profit for US corporates. It has been done before (5.25% instead of typical 35%), but it is not politically correct to suggest an election year is the time to do it again. There are risks to delaying. Tax inversions should be easier for cash rich tech companies that already outsource critical components overseas. JCGIf you enjoy the content at iBankCoin, please follow us on Twitter