Apple preparing new euro bond sale to fund capital return program for shareholders

“Apple is preparing a new bond sale in euros, according to a U.S. Securities and Exchange Commission filing by the company, though many of the details are still guarded,” Roger Fingas reports for AppleInsider.

“The offering will take place sometime in 2017 with the first interest payments beginning next year, according to Apple,” Fingas reports. “Other key facts —such as maturity dates, interest rates, and expected proceeds —have been left out or redacted, though joint managers will include Barclays, Goldman Sachs, and Deutsche Bank.”

Fingas reports, “The company has been using such sales to support its capital return program, involving billions of dollars in share buybacks and dividends.”

Read more, including Apple’s Form 424B2, in the full article here.

MacDailyNews Take: Better than repatriating at the current confiscatory rates.

SEE ALSO:
Apple issues $7 billion in corporate bonds – May 12, 2017
The fact that Apple has to issue bonds is a reminder of why urgent U.S. tax reform is needed – May 12, 2017
Apple borrows billions while sitting on massive overseas cash mountain – May 10, 2017
Why Apple is investing $148 billion in corporate debt – May 4, 2017
President Trump’s tax reform plan includes deep cuts in corporate taxes – April 26, 2017
Apple raises $10 billion in debt ahead of President Trump’s repatriation tax plans – February 3, 2017
After Apple’s blowout earnings, the Street looks toward ‘iPhone X’ and President Trump’s tax reforms – February 3, 2017
President-elect Trump’s corporate tax reform expected to have some positive impact on Apple EPS – January 14, 2017
Apple has now amassed nearly $80 billion in debt – September 12, 2016

[Thanks to MacDailyNews Readers “Fred Mertz” and “Dan K.” for the heads up.]


9 Comments

  1. I don’t understand MDNs Take. Isn’t this bond sale to pay Euro-based investments (non-US) so is not affected by US repatriation rates? Also, if the money is all ‘out there’ why sell bonds to pay for buy backs or dividends for non-US investors?

  2. The use of Euro debt would likely have the following benefit:
    Share buybacks reduce the amounts needed for dividend payments which are an after-tax payment. After tax cost of Euro denominated debt servicing is about .375% versus almost 2% for the dividend. The interest on the debt is tax deductible. Euro interest rates are less than US interest rates. 10 year Eurobond AAA rate is about .5% whereas US rate about 3%.
    Borrowing in Euro exposes AAPL to currency risk. However, having liabilities in Euros creates a hedge for Apple Euro-denominated revenues. If Euro rises, The dollar value of the Euro revenue rises as does the dollar value of the Euro liability, so there should be a partial asset. Borrowing to service capital return needs defers paying US tax at its high rate until some tax relief is passed by Congress.

    1. Do not confuse yield on a bond with the interest rate paid on that bond. They are not necessarily the same. You seem to be quoting the current anticipated yield rate for AAA rated government bonds.

      A bond could have a 5% interest rate, but a person could buy that bond on the market after the initial offering then have the bond market drop significantly. In that case the yield for the bond purchaser could be much, much less than the interest rate. Of course, the opposite situation could happen too. No one should assume yield is the same as the interest rate on bonds. They’re not. Yield fluctuates day to day with the market. Most often the interest rate (typically the maturity value) is fixed.

      Every documented case of which I’m aware of Apple floating bonds either in the U.S. or elsewhere has had significantly greater interest rates than the 0.5% rate you mention.

      1. The current yield indicates an approximation of what the coupon would be if Apple issued a bond at par today. If rates rise, the bond price will fall and the yield to the new buyer will be higher than the coupon. Also, the price and yield to Maturity will adjust as the bond moves closer and closer to maturity. MY main point was that is currently quite a bit cheaper to Apple to borrow in Euros rather than dollars. If rates rise significantly in Europe, the bond prices would fall allowing Apple to repurchase any callable debt at a discount. If rates fall, obviously the debt would sell at a premium and Apple could just wait and pay it off at maturity. The other unknown on Apple’s balance sheet is the how much $250 Billion in cash would add to earnings if rates rise. If it was all in T-bills, a one per cent rise in rates would yield a $2.5 Billion increase in gross income or about .45 to .50 per share pre tax.

  3. The main thing I don’t understand is why Apple is constantly being questioned about this sort of stuff. I would think Apple has plenty of knowledge of finance and tax laws to know what they can and can’t do when it comes to their own finances.

    I’m almost 100% certain there would be cries of anger and distraught if Apple didn’t pay dividends, do buybacks or decided to repatriate that overseas cash without a tax reduction. This is just another case Apple is damned if they do and damned if they don’t. Why do people who have never laid their hands on anything close to the money Apple has, always complaining about how Apple handles its cash?

    What Apple is doing seems to be very low risk so what’s the big deal? If these deals don’t directly hurt shareholders why are they upset.

  4. Imagine what a huge return on investment Apple could have if it released new hardware every year. The MacRumors buyer guide shows what an embarrassment the Mac has become since “supply chain genius” Cook took the reigns. This supposed genius hasn’t a clue what Mac buyers want. When Apple finally does roll out something, it has been neutered by Ive. Go into an Apple Store, and the Macs are squeezed near the back, far away from the watches and accessories—lots of 3rd party accessories to fill in the function gaps that Apple refuses to build in their expensive gadgets.

    Apple is insanely rich. Yay! Now they are fast becoming lazy and complacent. Pride comes before the fall.

    Apple needs more product engineering and less financial engineering.

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