Debt-free Apple plans to borrow to finance massive capital-return program

“Apple Inc. (AAPL), the debt-free maker of the iPhone, said it plans to borrow to help finance an expanded program to return capital to shareholders,” Matt Robinson reports for Bloomberg.

“Apple will sell an unspecified amount of debt as it returns $55 billion in cash to equity investors in a push to compensate for a share price that’s been hammered by signs of slower growth,” Robinson reports. “Standard & Poor’s gave the company its AA+ grade, the second-highest level of investment grade, and Moody’s Investors Service ranked Apple an equivalent Aa1, according to statements issued by the ratings firms.”

Robinson reports, “Apple may be lifted to Moody’s top Aaa grade if changes in U.S. corporate tax laws allow the company to repatriate cash held overseas on a more tax-efficient basis, reducing the need to borrow, wrote Gerald Granovsky, a senior vice president in that ratings firm’s corporate finance group… Apple could potentially sell $21.3 billion of debt and still have the average debt-to-equity ratio of a top-rated company, Bloomberg data show.”

Read more in the full article here.

Related articles:
Apple beats Street on EPS and revenue; ups quarterly dividend by 15%; ups buybacks to $60 billion – April 23, 2013
Apple paid $6 billion in U.S. federal income taxes, 1/40th of all corporate income taxes collected by U.S. government in 2012 – January 5, 2013
Google, Apple, eBay shouldn’t pay taxes – people should pay taxes – November 25, 2012
So how much did Apple really pay in taxes? – November 1, 2012
Apple’s showdown with the U.S. government over taxes on offshore cash – July 13, 2012
Apple‘s $74 billion tops list of U.S. tech companies’ overseas cash – July 9, 2012
Apple’s dividend move puts spotlight on foreign cash holdings, repatriation tax reform – March 20, 2012
Apple: Good start; and what about the overseas cash? – March 19, 2012
Apple’s foreign cash hoard piles up: $54 billion and rapidly growing – January 11, 2012
Senator John McCain eyes Apple’s $54 billion overseas cash pile – November 3, 2011
Google joins Apple in push for U.S. repatriation tax holiday – October 3, 2011
Apple lobbies Obama for tax holiday, wants to bring overseas bounty home – August 24, 2011
U.S Senate Democrat Schumer allies with Apple, other multinationals on repatriation tax talks – June 21, 2011
U.S. companies push for tax break on foreign cash – June 20, 2011
Apple, Oracle, Duke Energy, others organize lobbying blitz for tax holiday – February 17, 2011


  1. Is there a required sanity check to be on Apples BoD? The best run, most successful company in history is weakening itself to be more like other companies?

      1. But borrowing when you have more money than the lenders is a little strange.

        What I like about Apple is they’re not about finance games. They create value the only way you really can. By building a good product and a solid business.

        This feels an awful lot like an accounting trick.

          1. Absolutely. But it only works if one day taxes on repatriating the cash are lowered. As a shareholder, I’d rather just wait.

            I’m sure Mr. Cook wouldn’t do it if it didn’t make sense (real sense, not Wall Street sense). Still, I’d prefer it if the company continues to think different.

      2. Comments here show how bad our education system is or how bad our students are when they smoke dope. Don’t show your ignorance by stating you don’t understand or think this is a stupid idea.

  2. That doesn’t make any fscking sense AT ALL!

    Why give yourself an interest expense? What on earth is the point of that?

    I smell a CROOKED BANKSTER out to rob Apple.

    Steve, you can start rolling over in that grave of yours.

    1. It make all the sense in the world to those who understand basic finance. When debt is this cheap, Apple would be stupid not to take advantage.

        1. It’s not the least bit surprising to me that a Neo-Con troll who suffers from the worst possible tunnel vision and selective memory cannot grasp the basic lessons of history, and instead choose to apply rhetoric not even remotely based in reality to support the fiction you so dearly hold to as ‘truth’.

        2. I totally agreed with your first post. But then you just had to foul yourself by bringing politics into it again. Totally uncalled for. You are such a dumb fsck.

        3. I agreed with your first post.

          With regard to the second, you obviously are not paying attention. Democrats would like to spend more money on stimulus using cheap debt to do projects that help our economy now and in the future. The GOP/conservatives/Tea Party are the ones that think that any debt is bad debt.

    2. I don’t know Corporate Tax Law, but my guess would be that there is a Tax incentive to the debt. Knowing the way our Tax Laws are currently configured, Apple will probably get some kind of massive refund from the Fed because of the interest they pay on the debt.

      1. In order for Apple to make all of the payments to shareholders, including the share buyback program, Apple would have to bring money it earned overseas back to the U.S., where it would be hit with a 26% (approximately) tax rate.

        Or, Apple could borrow the money, pay a very low interest rate (say, 4%-6%), and keep its offshore money for use with building more Apple Retail Stores, foreign acquisitions, etc.

        So Apple’s choice is to pay 26% or 6%. NOW does it make sense to you?

      1. Oh, I’m going to profit from it, don’t get me wrong. But that’s all it’ll be: me trying to make a profit (or recoup my losses) and get out before the inevitable crash, instead of me investing in a company I truly believe in and expect to see succeed regardless of market fluctuations.

        I have zero faith in the long-term prospects for Apple. Cook has proven he can be manipulated by Wall Street, and that’s very dangerous.

    1. I will say this: better Cook be the one to do it. Otherwise, they would have fired him and brought in someone who would have likely done far more damage.

      That is the ONLY consolation I can think of in this situation. All I can do is hope to recoup some of my losses on Apple, and bail. Hopefully, though, this idiocy won’t impact the quality of the products for a while.

      1. The only idiots here, so far, are those of you who can’t do basic math. Apple’s Board is doing the right thing. There is good debt and bad debt. This is good debt.

        1. No debt is good debt if it’s unnecessary. And this is completely unnecessary, and only serves to line the pockets of the greedy masses who’ve been manipulating AAPL share prices. This is EXACTLY what they wanted Apple to do, and giving it to them proves just how weak Apple’s leadership is.

          Instead of doing the RIGHT thing–focusing on putting forth great products and letting the stock price handle itself–they’re now playing a game wherein Apple will lose big, and the consumers will lose even bigger.

          1. One, an increased dividend may attract more value investors. Two, Apple shares are cheap.
            Three, it may get some of those investment banks badmouthing Apple, some pause to reconsider, now that they get a small commission on the debt.

            1. I only have one point to make: what impact does AAPL stock price, or who is investing in AAPL, have to do with Apple, Inc.’s ability to do its job and produce great products?

              There’s a reason Apple was so successful since Jobs came back: the company was focused entirely on the products, and the stock market responded accordingly. That formula WORKS, and it’s why Apple was able to come back from the edge of disaster to reach where it is today.

              But no, let’s divert our attention from the ultimate goal from which Apple’s financial success flows, and give these people who don’t care one iota about Apple’s future success or its ability to produce great products a share of the pie.

              As an Apple investor, I want Apple to be a success. Throwing money at the people who’ve been trying to tear it apart these last eight months is the opposite of that.

          2. 1. The market wants Apple to give back some of its cash hoard
            2. It is much cheaper to use debt for this right now than to repatriate its foreign profits
            3. Thats it. The decision is an easy one, and not controversial.

            1. 1. What does “doing what the market wants” gain Apple, and how does it positively affect Apple’s ability to produce premium hardware products with the best software and ecosystem on the planet?
              2. If they don’t NEED to be doing #1, then they don’t need to use that debt at all to do anything!
              3. That’s it. The controversy is Apple doing something it shouldn’t be doing, and taking on debt to accomplish that goal.

            2. How does “doing what the market wants” affect Apple at all? It shouldn’t affect it positively OR negatively, as it’s the engineers ( and Jonny Ives, et. al.) that do the work in the background that produce the premium products, hardware & software, that fills the pipeline. It’s the BoD & T. Cook that look after the company and answer to the shareholders.

            3. Agree 100%!!!!!!!!!!
              Apple sole focus should be on making great products. That’s it. This manipulation by Wall Street and Apple’s capitulation does not bode we’ll for my all time favorite company.

          3. F14T16 is right.
            You’re wrong. Not all debt is bad. My University Economics book gives a few great examples of good debt: Home Morgage, School Loan. If we ignore everything about Fann/Fred and morgage issues. In general if the debt has an upside in creating value, it’s good debt.

            1. What I was trying to say was: just because someone owns a home doesn’t mean taking out a home loan (unnecessary since no one needs two homes) is a bad loan. It leads to further wealth creation. It’s how the system is supposed to work.

  3. The debt-financed buyback will increase EPS because fewer shares will be outstanding. However, that will be offset when the company takes on debt. The net impact of both events on the company’s market cap will probably be negligible … unless there are a lot of investors who aren’t aware of the reason that eps increases.

    One thing that might help the share price: the interest payments are tax deductible. To estimate the value of this benefit, assume it borrows $20 billion at 5% , and that its corporate tax rate is 30%. The annual tax benefit would be $300 million annually, or 32¢ per share (8¢/quarter).  If AAPL has a p/e of 10, this would add $3.20 to share price.

    One other impact of the share buybacks and dividend increase: It could signal to investors that Apple management is more confident of its future, which would make investors more confident, too.  But nothing will instill confidence like a new killer product, China Mobile deal or an earnings beat during the July or October earnings report.

    1. Don’t these buybacks practically finance themselves? Apple won’t have to pay the dividend on the shares they retire. Right now the dividend is about 3%. Surely that’s more than they’ll have to pay for the loan.

    2. Borrow $20b at 5% gives you a net tax gain of $300m…. err, what about the $1b paid to the banks in interest?
      Looks like a $700m annual loss to keep Wall Street happy – and I’m guessing some nice buying for executives with stock options to sell into.
      Borrowing cash to finance stock purchase is almost immoral and certainly not a good guide to long term corporate governance.
      Hope this is a one off.

  4. And in this comment thread: a bunch of people who don’t understand finance or the effect of US tax laws on Apple’s ability to perform their capital-buyback program.

    Don’t listen to them, Tim and Oppy. You both know and understand exactly what you’re doing. Keep up the great work running the world’s best company.

  5. it makes sense, IF the goal is to give more of the accumulated cash pile back to investors during the next few years. The tax to “repatriate” the foreign cash is FAR higher than the current “historically low” interest rate on a loan. So, borrow some money now and pay very little interest, hope for some sanity in DC at some unknown point in the future, and repatriate the foreign cash later, when those taxes are lower.

  6. While I admit I know nothing about financing a share buyback program by taking on debt, I would assume, that if you can take on debt at a really low interest rate, it would be better than trying to return money to shareholders by trying to get money from overseas accounts and get reamed in corporate taxes.

    ‘Apple may be lifted to Moody’s top Aaa grade if changes in U.S. corporate tax laws allow the company to repatriate cash held overseas on a more tax-efficient basis, reducing the need to borrow…’

  7. This is a bit like my own small business. It seems to defeat all logic, but if I don’t have something on my depreciation schedule then Uncle Sam is taking a bigger cut of my profits.

    So, I’m always trying to buy something *smartly* that will improve my business in some way and make us better that will also have the side benefit of lowering my tax liability, particularly if I’m bumping up against a higher tax bracket. Better I get to keep some of the money and invest it myself than just have it go straight to the government. I’m not smart enough to know how this really helps Apple right now, to be honest, but I’m sure they’re not doing this for the hell of it. At least I hope not.

  8. Listening to the conference call, I got the distinct impression Tim Cook and Company are sick to death of the enormous distraction the share price plunge has caused – and they are going to fix it by very agressively buying back shares and modestly increasing the dividend.

    And they have room to firther increase this stock repurchase plan in another year or so.

    Since it doesn’t say specifically how much Apple intends to borrow, Apple could be simply establishing a “slush fund” of credit which would allow a far greater rate of share repurchases along with dividend increases than simply using available cash in the United States. If the stock price rebounds in the near term – Apple uses cash on hand over the next couple years and borrows very little. If the stock tanks – Apple uses borrowed funds to aggressively repurchase shares in the short term over a time span measured in many months – but months nevertheless.

  9. It is all about pleasing the banks. They want to make money off the 150 billion in cash that apple has.

    From the buy backs they will make 60 basis point (30 basis points for pushing the buy and aell buttons) or 360 million (60 billion in buy backs). Then they make 3 percent off the loan which they will play around with in the debt market. All in all this will be worth half a billion while long term stock holders get screwed. Amazing. SJ is spinning in his grave.

    Schmidt of google is laughing big time.

  10. Even though I’m a shareholder, i don’t see why APPL or any corporation should get a tax break at repatriation. We’re in the 99% of Americans who will benefit from a healthier economy.

  11. Ok, NOW can we admit Apple has changed?? It makes me sick, but this is not the Apple Steve ran. If their next releases with Ive in charge of human interface isn’t ground breaking, I don’t know if they will ever recoup the momentum they had.

    1. I’m with you, Lazarus. Rather than putting out products so great that the market couldn’t help but respond positively, Cook & Co. have capitulated to the demands of these Wall Street hacks who just want a quick payday at Apple’s expense.

      If there is ONE thing Cook should have done the Jobs way, it’s handling the stock market by ignoring it and focusing the company’s energy on what really matters.

  12. I doubt more than 5 responders have even taken a Finance course. Borrowing good debt in the right times and for the right reasons is good. This is definitely good debt. It’s not much different than choosing to finance a $5 million home or pay cash for it if the money is available. Almost always, this is good debt and to borrow is far better than just to pay cash for the house–all things being equal.

      1. Thanks for that helpful reply. While rbutler’s reply was scarce on details, the fact is that Apple has too much money lying around, earning approximately 0 interest, and there are better uses to which that money could be put. Based on their announcement yesterday, Apple has decided that one of those uses would be to invest in the company itself – that is, to buy Apple stock. In order to maximize their return while operating within the US tax code, it is more efficient for them to issue debt (which has already been very highly rated by Moody’s), than to bring their own money in from overseas in order to accomplish the same goal. Apple will still have huge piles of cash overseas, which they can use for expansion in those markets, research, or any other thing that Apple chooses to do – within those markets – and the intellectual property developed overseas can always be brought back to United States and used for the benefit of Apple corporately.

        This is a winning strategy and it makes me happy as a shareholder. This morning’s crop of “Apple is dying” stories read as even more nonsensical then they have over the past few months. I hope we are seeing an end to this blatant manipulation, but I’m not optimistic.

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