Apple goes big on debt – and gets it right

“Years of badgering Apple to consider the virtues of taking on debt finally paid off for the investment banking industry last week – and for two banks in particular – when the world leader in consumer technology innovations issued a record-breaking US$17bn of bonds,” Danielle Robinson and Matthew Davies write for International Financing Review. “The industry has for years been trying to convince Aa1/AA+ rated Apple to join the rest of the world’s major tech companies and take debt on to its books.”

“After seeing scores of other companies issue debt to fund share buybacks, with little impact to their funding costs or ratings, Apple is believed to have mandated Goldman Sachs in January to lay the documentation and ratings groundwork for a deal, the proceeds of which were to help to fund a US$100bn capital reward for shareholders, including a US$60bn share buyback over the next three years,” Robinson and Davies write. “The decision to come to market coincided with signs that some of Apple’s business segments were maturing, as well as the fact that, with central banks flooding the market with liquidity, record-low funding costs made issuing debt a tantalising alternative to dipping into its US$145bn of cash, about US$102bn of which is held offshore.”

Robinson and Davies write, “Doing a deal of such size in one day is a challenge in itself. The deal attracted 2,000 orders from 900 investors, amounting to a record US$50.2bn, for six separate tranches spanning three-year and five-year fixed and floating-rate notes, plus 10-year and 30-year fixed-rate bonds. ‘It required a lot of preparation, a lot of planning, organisation and team work to make it look as smooth as it did,’ said Jonathan Fine, head of US investment-grade debt syndicate for Goldman Sachs… Certainly, the deal was a resounding success. The leads priced and sized the deal to a tee, as evidenced by its after-market trading, which saw all tranches tighten by a few basis points.”

Read more in the full article here.

Related articles:
Apple avoids potential $9 billion U.S. tax bill – May 2, 2013
Debt-free Apple to take on debt to avoid huge U.S. repatriation tax hit – April 26, 2013
Apple’s massive $100 billion capital return program is a perfect tax arbitrage – April 26, 2013
Apple to tap a hungry debt market; strong demand likely from investors eager to get cash off sidelines – April 25, 2013
Debt-free Apple plans to borrow to finance massive capital-return program – April 23, 2013
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. Exactly. We have been conditioned to think otherwise, but no matter what anyone tells you, cash is king. (And that paper in your pocket isn’t cash, it’s debt. It’s a Federal Reserve NOTE: an IOU. Our whole system is debt-based, to our detriment.)

      1. Correct, it is fiat currency which simply means it is not guaranteed by gold or silver by the United States Treasury…that went out the window courtesy of FDR and then Tricky Dick financing Vietnam.

        1. We don’t have gold or silver on the planet, let alone Fort Knox to backup our currency, so what is a nation supposed to do? Besides gold and by extension silver prices fluctuate waaaaayyy too much. Gold just had the largest drop in prices in over 30 years.

          Course the next day Glenn Beck had already formulated his Obama conspiracy theories on why his gold sponsors are losing money. With snake-oil salesman input like Beck’s who needs economic terrorists.

          1. The United States Bullion Depository holds 4,578 metric tons (5,046.3 short tons) of gold bullion (147.2 million oz. troy). This is roughly 3 percent of all the gold ever refined throughout human history. Even so, the depository is second in the United States to the Federal Reserve Bank of New York’s underground vault in Manhattan, which holds 7,000 metric tons (7,716 tons) of gold bullion (225.1 million oz. troy), some of it in trust for foreign nations, central banks and official international organizations.

            1. Per your numbers, botvinnik, the combined holdings of the United States Bullion Depository and the Federal Reserve Bank of New York is 372.3 million oz. troy. If you generously value these holdings at $2,000 per oz. troy (historical high range), the total value comes to $744.6 billion in U.S. dollars.

              According to information provided by the Federal Reserve System, “There was approximately $1.18 trillion in circulation as of April 24, 2013, of which $1.14 trillion was in Federal Reserve notes.” So all of that gold, even at a high price, would only cover ~65% of the existing notes. It is also worth considering that only about 10% of the U.S. “money” in circulation is in the form of hard currency (M0 supply).

              I don’t know where you acquired your reactionary viewpoints on economics and currency. But you might want to consider the fact that the intrinsic value of gold and silver can vary quite a bit based on circumstances and utilization. In the end, a solid economy is the best way to support a currency.

        1. You wouldn’t know the first hing about Steve Job’s thoughts reasonings and strategies. How many times did Steve Jobs say he was against something he then reinvented and embraced? MANY.

          It takes greatness to reconsider something – there’s a time and place for everything. What may be the right move for today might not have been the right one for yesterday… Apple didn’t always have 1.5 Billion sitting in cash with steady projections for 10 Billion a quarter . Nor were circumstances beyond your political ideology ( if that’s what you call it) the same then as they are now that Apple is in World expansion and growth mode.

    2. If you sit back and analyze the transaction you just might see the shear brilliance of what was accomplished. The blended coupon rate for the whole bond issuance was 1.87%. (
      Apple intends to purchase its stock with the proceeds. Lets say at todays price of $450. At $450 the stock pays dividends equal to 2.7%. So Apple by buying its stock just lowered it cash flow outlay from 2.7% to 1.87%. In addition it is now able to deduct the interest expense. There by lowering its cost from 1.87% to 1.23% based on a combined Fed and state income rate of 34%. There should also be a slight increase in earnings per share, but this would take time to analyze and calculate.

  1. Whu? Haven’t you been paying attention? By taking on this debt, Apple buys back shares making it more independent of the share holders, pays a dividend, both of which drive up the share price, borrows the billions tax free because the interest is deductible and avoids hundreds of millions in US taxes. It’s the way it’s done.

      1. Steve didn’t do it because he knew it is wrong. He wasn’t against paying taxes, he was against paying taxes twice. He happily would have paid the difference between outside-US and inside upon repatriation of the money – he just didn’t want to pay the full amount. He also knew it would paint Apple into a corner as a greedy big corporation – and let’s face it, Apple’s reputation is worth money. Tarnish it at your own peril.

      2. You’re nothing but a loud grumpy, bitter fart that never wants to reckon with any of the answers to any of the questions you ask, that challenge your defective asinine spouting.

        You’ve ignored all rationalizing and justification of Apple’s latest financial moves, that by most investor’s opinion are brilliant.

        I think you don’t have neither a pot to piss in, nor a dime invested and your big mouth is telling.

        1. since you’re not very bright, one more time:

          yeah well, I’ll keep subscribing to the Steve Jobs School Of Economics and you hang in there with The Timmy Has Fallen In The Well School. We will see who drowns first.

          1. You might want to read my answers to his question the other day which he copped out of because they only made sense. You might want to read the plethora of investor’s reactions to Apple’s brilliant moves and see how they feel. Yu might want to correlate facts, and the big picture effect and objections before asking for spoon fed points…

            1. are these the same people who propagandized FUD for the last four months to drive down AAPL stock and then force spineless Timmy to pay them extortion money through debt? And just as suddenly, AAPL is on its way back up?

              well, how ’bout that? the answer is YES!

              Breeze, you’re just not very bright. Steve-o woulda told them to jump up and kiss his ass.

            2. No I’m not very bright, but I know Apple very well since it’s inception, as a user, consultant, developer and integrator. I’ve put my money where my mouth is and so has Apple and the many investors who think likewise.

              Apple has been a $1000 stock for a long time, as you well know it has been attacked by everyone with a gripe and then some for no reason that has to do with bad fundamentals or performance.

              Steve Jobs was constantly second guessed and shat on when he was alive and even when he was dying, all the geniuses and doubters that call themselves analists never understood him nor Apple and I bet they never will because Apple makes it’s own models and doesn’t fit the molds.

              Apple is on it’s way up from an artificial downing and will prove itself once again, but what’s the use of having anything to say if you can’t ever consider another logical or possible angle? Isn’t the premise of thinking different the basis for all Apple’s existence?

              Yes it is and you, my friend couldn’t possibly be worthy of anthing sensible in fact as a NY Yankee fan you are also a disgrace to most old time Yankee fans everywhere.

            3. Kicking the Red Sox ass is always fun…

              No I didn’t see that game but watching Dave Righetti pitch a no hitter against the Red Sox on the 4th of July 1983 was probably just as exciting for me.

            4. You are one old troll. “extortion”? Maybe you should go back to the 50’s so you can relive your beloved Yankee’s kickin’ some Red Sox ass. People who live in the past, especially from close to 60 years ago need to get a life.

            5. BOTVINNIK is now deciphered…

              You are a bored, bitter old troll that needs to really get a damn life, sitting in a lazy boy in your shitty underwear, insulting everyone with vulgar ignorant obsolete reason and rants.

              What a creative past time. zap your PRAM, Get outside and get some sunshine, get a life before it’s over

  2. How disappointing.

    That tax could have paid for a lot of iPads in school. Repaired bridges. Paid teachers and nurses. Reduced the debt mountain a little bit.

    Who is “earning” that money now? Analysts, “investors”, banks.

    The worst part? People are getting fleeced and cheer because they think it is good news. MDN’s takes on it are particularly disappointing lately.

    Sheep to the slaughter.

      1. And that’s wrong because it isn’t the usual far LEFT slant the rest of the media has?

        Unfortunately, unbiased news went out of style YEARS ago.

    1. Your key words are ‘could have paid for’. If Apple repatriated its overseas money at 35% tax rate that money would not have been used for anything you mentioned, it would have just been swallowed up into the Black Hole that is Government, never to be seen again.

  3. P.S. A lot of people here still seem to think money can grow out of thin air. No, every cent is coming from somewhere. Think about where it comes from, and where it goes to.

    And the consider if you really should be cheering.

  4. There is no “virtue” in taking on unnecessary debt, especially during a worldwide depression. It has Apple Corp with its pants down around its ankles and bent over to “take it” from the banisters and Wall Street.

    In this case, Apple is creating a debt vehicle as an alternative to offering more stock, just like the good ole USA with its bonds – and look at what has happened to the USA as a result with being $trillions in debt.

    I can understand the reasoning behind such a move, but I certainly don’t approve. Apple is sitting on honest money to expand operations and is in an enviable position of strength. “Bonding” reduces that position and leaves it more vulnerable than need be.

    1. So far it looks like cash generated by operations will more than cover the debt.

      I see this maneuver as Apple converting its stock into bonds. Stock carries voting rights, bonds don’t.

      As far as I can tell investors in bonds have a longer timeline than do stock investors, which is more in line with Apple’s approach to business.

      So I’m in the “Savvy move, Apple!” camp on this one.

  5. Apple’s debt enabled buy backs and increased dividends will create taxable events and resulting revenues far beyond the non repatriation tax savings. Apple market cap has increased $50 billion plus since buyback announcement. at a 20% tax rate that’s $10 billion in potential profits. Think of all the profits created last year by those who sold in 600’s plus. Think of the income form the Apple eco system. I would venture to say that in 2012 Apple was the tax engine in the economy. From Apples point of view, they can use the shielding of the interest expense to repatriate cash, should they so choose.

  6. It would seem to be a good move for Apple to buy back stock as much as possible.
    I have strong concerns that the greed and profit driven investors will kill the goose that lays the golden eggs if they coerce Apple into taking their eye off of the ball (or where the hockey puck is going to be, so to speak) and cease making insanely good products for their true customers, those who buy their products, rather than those who buy their shares.

  7. Taxes WILL be paid on these borrowed funds. . . by the stock holders who receive the funds when they sell their shares back to Apple pay their capital gains they’ve earned and as income taxes when they receive it as a dividend. The taxes just won’t be paid by Apple. The governments will get their pound of flesh. Apple will be left to reinvest their cash . . . Someday.

  8. “Virtuous” as defined by Wall Street.

    I wish there was more true virtue in Wall Street. Unless we figure out how to benefit everyone on the planet with economic growth, the system is ultimately doomed. Instead of the next quick buck, often earned to the detriment of someone else (e.g. Goldman Sachs selling their clients doomed product that they themselves were shorting), we need to grow a middle class everywhere – that is what caused prosperity in the U.S., and the decline of the middle class due to Wall Street’s antics, in part, is why the system is caving in on itself. You have to have someone to buy product.

  9. Paulson and Geitner are Goldman Sachs alums. When the US government issues debt, everyone, including me, is increasingly alarmed and disappointed.

    But when Apple does the EXACT same thing, then MDN searches far and wide for a shill who will publish the opinion that debt is virtuous.

    Debt is NOT virtuous. No financial transaction has ANYTHING to do with virtue. Debt is an inevitable fact of life for most people who enter the world with nothing and decide, wisely, that they need to accelerate their education and home life by borrowing while they are young and poor, so they can then lead a long prosperous life.

    Apple is not young or poor. Its debt-loading is a blatant stock price manipulation scheme that enriches Wall Street traders but does NOTHING for the Apple user community, except to demonstrate that Apple management is focusing its attention on enriching its buddies rather than serving the Apple community.

    I am fully aware that investors deserve rewards, but Cook has amply demonstrated that his “product pipeline” is not receiving the attention or resources it needs.

    Proof positive: stealing Mac OS X engineers to support the iOS because management can’t staff up enough to keep both divisions on track. No organization with Apple’s global scale and wealth would ever have this problem if it was being well-managed.

    … oh, and does anyone want to buy a copy of iWork ’09 in the 2013 calendar year? More proof that Cook and Co. have totally lost track of what used to make Apple special.

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