Apple on Monday took on $8.5 billion in new debt with a four-part bond deal, adding its name to the roster of U.S. investment-grade companies borrowing a record amount of debt in the corporate bond market during the pandemic.
Apple Inc. makes borrowing during a pandemic look as easy as pie. The Apple debt deal stirred up significant interest for a series of bonds that mature in three, five, 10 and 30 years.
“It’s a nice reminder that even in this uncertain market, that investment-grade companies have access to capital,” said Tom Murphy, head of investment-grade corporate credit team at Columbia Threadneedle Investments, in an interview with MarketWatch. “So many companies would love to be in their situation from a capital perspective,” he said of Apple and its significant cash pile and cheap access to debt.
Apple, which had a massive $190 billion cash hoard as of its first-quarter earnings last week, indicated that the new debt will be used for a variety of general corporate purposes, including paying dividends, stock repurchases, debt repayment and working capital.
Apple has $8 billion of debt coming due in 2020, mainly borrowed in the U.S. and Japanese debt markets, according to analysts at CreditSights. “They may be setting themselves up to pay that back,” Murphy said.
In total, Apple was able to borrow $8.5 billion this time around, compared to $7 billion in September 2019. Despite the larger offering, total annual interest on this week’s deal was just over $135 million, compared to more than $154 million in last year’s deal. That nearly $19 million less in interest means that the weighted average coupon this time around was 1.59%, more than 60 basis points below the 2.20% seen last year.
Management still has a long way to go to get to its cash-neutral balance sheet target. Over $90 billion has been spent on capital returns in the last four quarters, yet the net cash balance is only down by $30 billion. That shows how great Apple’s cash flow production is.
In the end, Apple got a tremendous deal with its latest bond offering. Despite raising an extra billion and a half dollars, more than 21% more than last year’s offering, the company is paying 12.2% less in annual interest on a dollar basis. Whether it be for refinancing of previous debts or to help with the capital return plan, investors should be thrilled that the technology giant was able to use its financial might to its advantage yet again.
MacDailyNews Take: Free money.