Apple to Raise Up to $12 Billion in Debt to Fund Capital Return Program

Apple-BondsApple has filed a preliminary prospectus supplement with the U.S. Securities and Exchange Commission as it prepares to issue a $10-$12 billion bond sale, reports CNBC. The debt raised will fund Apple's capital return program, including continued stock buybacks and dividend payments to shareholders, and general corporate purposes such as the repayment of debt and acquisitions.

Apple will be offering floating rates that mature in 2018 and 2019, in addition to fixed rates that mature between 2018 and 2046. Apple's proposed 30-year bond due in 2046 may yield 2.15 percentage points more than similar-maturity Treasuries, according to Bloomberg. Apple is also planning to issue seven-year green bonds, typically used for clean energy and other sustainable initiatives, the report claims.

Apple's capital return program currently runs through March 2017, as announced last year. The company has returned $153 billion in capital to investors of its $200 billion currently authorized, so the iPhone maker will almost certainly need to raise debt through this bond sale in order to continue stock buybacks and dividend payments before setting a new authorized amount as soon as April.

Apple held $215.7 billion in cash and marketable securities, partially offset by $53.2 billion in long-term debt, as of the first fiscal quarter of 2016, but a significant portion of that money is held overseas and would be subject to high U.S. taxes upon repatriation. By raising debt through bonds, Apple can pay for its U.S. operations at a much lower rate, especially given its Aa1/AA+ bond credit rating.

Update: Apple has filed a final pricing term sheet with the U.S. SEC confirming its nine-part $12 billion bond sale.

Tags: bonds, SEC


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11 months ago

a desperate try to stabilize the shares in a rather money-burning action…. instead of caring about customers needs… or care about the horrible working conditions in China...


Apple is at the top of the list of the most active companies assuring worker conditions and rights. Most companies who do work in China are low profile enough that they don't even need to make a report. Why single out Apple? What about any other electronics manufacturer, consumer electronics, home appliance, clothing, children's toys, steel manufacturing, etc. The problem isn't Apple, it's China. China's elite would rather pump their egos up on the death of their own people's children then ever consider real laws and guidelines for worker safety. So seriously stop the BS. Apple is literally doing everything it can, which can not be said for some others whose products you are probably wearing or looking at or touching at this very moment.
Rating: 10 Votes
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11 months ago
I thought to payoff Kanye's debt. ROFL!
Rating: 7 Votes
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11 months ago
That's a good move by Apple considering its position especially with that credit rating and (hopefully) more innovation boost. Much better than bringing money back to the US with that sort of taxation.
Rating: 6 Votes
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11 months ago
What a dumb way to spend that money. If Cook is so worried about the share prices, he can hire more people to fix software bugs, put more GBs of storage and ram in all of its hardware, add a couple millimeters to substantially increase battery life of all of its hardware, and I'm sure more people will buy Apple goods and share prices will naturally increase as well. They can buy companies like Adobe and Nintendo for what they spend on buybacks yearly. I buy Apple products, but I know they are far from perfect and Android and Windows just plain suck, so I don't have much of a choice. Watching where the profits go is a bit disturbing to be honest.
Rating: 5 Votes
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11 months ago
They bought shares at $140.
They bought shares at $110.
They bought shares at $95

Four observations.
1. Great example of dollar cost averaging. If the stock goes up to $200 they're geniuses.
2. Think of all the hardware and software they could have upgraded and/or fixed with all that money.
3. Never try to catch a falling knife. It looks like they're failing terribly at propping the stock price up.
4. Tim, Eddy and Jony need to be sacked.
Rating: 3 Votes
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11 months ago

Wait, but how does Apple pay off this debt without bringing back the overseas money at some point in time?


Simply, because its Noth American operations generate so much free cashflow before financing activities that with it is expected, factoring a conservative revenue growth rate and significant decline in its gross margin, for the region, that it will be more than able to cover (apply multiplier here) the total service of debt (until maturity) from all the indebtedness it has taken for the dividend payout and stock repurchasing program.
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What a dumb way to spend that money. If Cook is so worried about the share prices, he can hire more people to fix software bugs, put more GBs of storage and ram in all of its hardware, add a couple millimeters to substantially increase battery life of all of its hardware, and I'm sure more people will buy Apple goods and share prices will naturally increase as well. They can buy companies like Adobe and Nintendo for what they spend on buybacks yearly. I buy Apple products, but I know they are far from perfect and Android and Windows just plain suck, so I don't have much of a choice. Watching where the profits go is a bit disturbing to be honest.


It is not an ad-hoc plan to increase the share price, because the market before the repurchases had taken place would have already discounted their effects, they are open and well known, so the actual repurchase doesn't have a direct effect on its stock price. The plan for dividends and stock repurchases and the commitment to execute it was publicly layed out (in quantities and dates) by Apple a few years ago, it was announced by Tim Cook due mainly to the pressure of institutional investors (fund managers); Steve Jobs would probably have told all of them to go to hell and "****" themselves. But Tim them was a newly appointed CEO.
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Looks like upper mgmt needs to try to boost the stock price to meet their yearly bonus targets....


Their bonuses are not directly tied to the stock performance, but the company fundamentals: delta revenues, delta gross margin absolute and %, delta EBITDA absolute and %, delta net margin absolute %, delta net income before taxes absolute and % by product segment, line, product, market, distribution channel, etc...

The only relationship stock prices has to do with remuneration is by means of its effects in the call options vesting this year but given normally at least three years ago as part of the bonuses of the year given. If the options are out of the money during the period from vesting to expiration (usually not very long) they are simply worth 0 but the person receiving them would in most cases have paid taxes on then because when granted they usually are in the money (taxes have to be pay on the difference between the spot price of the stock and the lower strike price of the option even if the option can not be executed until vested 3 plus years later). If now are worth 0, he put up usually a lot money up front for nothing.
Rating: 2 Votes
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11 months ago
Please don't post suggestions of adding battery life to fix the stock price of AAPL, that has nothing to do with the move that Apple did or with why the stock price is low/high etc...
Rating: 2 Votes
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11 months ago

This is just the dollar currency issue. Based on past experience you can expect a euro issue and possibly two other currencies as well. The total raise could be 2-3x this sum. With the stock near recent lows it is smart to get liquidity. The capital cost averages 3% and the yield on the stock being bought back is 2.2%. Not quite pays for itself on a cash flow basis. They should actually use offshore funds to buy stock on margin and when repatriation is allowed, send the shares not cash.

Rocketman

Here's what a green bond means:

http://www.latvenergo.lv/eng/investors/announcements/7909-latvenergo-as-implements-placement-of-7-year-green-bonds

This firm is government owned. :D


Let's start by the end, your "Green Bonds" are simply non-investment grade which means in layman terms: Junk Bonds, that's why investing in them is only allowed to "qualified investors" as they say Caveat emptor.

If the you think the euro will go crazy as you seem to suggest, I would suggest to start buying tangible commodities with intrinsic value like Gold, Uranium, Silver and short the dollar too because both will tumble together (the dollar and the euro are already so intertwined that a shakedown at one will directly affect negatively the other).

On the other hand if you think the cash holding of Apple are denominated in mostly in euro because they are "outside" the US, you are wrong.

You may have never heard of Euro-Dollar (also known as Petro-Dollar) Denominated Accounts, these are accounts nominally outside of the US, which hold dollars that actually are accounts of International Banks, think HSBC in their own US Subsidiary or in any other mayor US Bank. Those US dollars are from their overseas clients, the money goes through the Fed as any other US dollar, and it's invested in t-bills, treasuries, government bonds, corporate bonds or any other financial assets denominated in US Dollars but its regulatory and tax treatment is completely different from a resident in the US because for most of the deals the tax and regulatory jurisdiction is the one that of the bank where the client has the euro-dollar account and not the US.

Apple will probably have euro-denominated accounts in well diversified basked of currencies covering the most important one in which it does business, including the Chinese Yuan, as they are natural hedges against world currencies exchange rate fluctuations.

The purchase of shares by offshore subsidiaries will surely be construed (due to financial consolidation) by the IRS as form of repatriation of earnings subject to taxation in the US, as it's the company through wholly owned foreign subsidiary who is actually repurchasing the shares. Financially assisting the parent company to proceed with the repurchases. Moreover if those shares had to be amortized due to SEC regulations (it does not matter it the shares are held by the parent or any controlled subsidiary for the purposes of the SEC are under control of the Company) the subsidiary would have clearly give funds in exchange for nothing.

Understand that's one of the reasons why Apple does not sets a credit facility from its subsidiaries to borrow money to pay for dividends or stock repurchases, when it consolidates its financial statements there would be no debt (you can not owe to your self, it's an oxymoron).

When you factor the 27% in taxes for every dollar the would have to pay if they didn't borrow, this far more than offset in the order of a few magnitudes the current yield they'll pay their bonds vs using their own cash at 0% (I already simplified the formula on both sides of the comparison with different sign is the return they can get in their onw free cash so you can take it out from both).

The current yield on the AAPL stock is irrelevant since the repurchase plan was made long ago, it's what is called a sunk cost (or if you prefer a given since the past cannot be changed).

But for the sake of it, neither Apple, nor any sane company board -besides not being allowed by the SEC- should ever buy its own stock on margin by depleting its cash reserves. if its stock falls it will have to put up more collateral that it doesn't readily have, the market will smell it is in a cash crunch and investors will start fleeing dumping its stock, as a result the price will fall more and it will have to come up with even more collateral for the margin account and soon everyone will be unloading its stock at any price and what just happened is like getting in a stall and keeping pulling up the nose of the plane so nobody notices, nothing more than the perfect recipe for an uncontrolled accelerated stall that will spin the company out of control and hopefully only into bankruptcy.

On the other hand, a company certainly can't buy all stock it wants from its shares outstanding, nobody can do it because after purchasing over certain threshold it has to present a tender offer to the company and its shareholders for 100% of the outstanding shares.
Rating: 2 Votes
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11 months ago

a desperate try to stabilize the shares in a rather money-burning action…. instead of caring about customers needs… or care about the horrible working conditions in China...


Nope. Apple does this regularly to pay its quarterly dividend. Most of Apple's $ is overseas and this is less expensive than xfering cash back to the U.S.

I have issues with the increasing downward quality of Apple s/w and lack of exciting products but this is sound Corp. cash management.

Also keep in mind it's these buybacks that give Apple the ability to offer key employees stock options in order to retain them as employees long term
Rating: 2 Votes
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11 months ago

Not really. If you look into why, ultimately, that stocks have value, it's because eventually it is expected that they will pay dividends or will be repurchased by the company. This is the underpinning that makes stocks something more than just the Greater Fool Theory.


Honestly, I'd be very happy if Apple went private like Dell did recently, but I somehow doubt it can happen with a company of Apple's size.

Why do I care? Because most of the problems people complain about are caused by Tim Cook being a miser, and he does it to please Wall Street.
Rating: 2 Votes
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