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Apple Raises $7 Billion in Debt Ahead of Trump's Proposed Tax Holiday

Friday May 5, 2017 6:48 am PDT by Joe Rossignol
Apple has raised $7 billion in debt in a six-part bond sale, according to the company's final pricing term sheet filed with the Securities and Exchange Commission today. The fixed and floating notes mature between 2020 and 2027.

Apple said it entered 2017 with $256.8 billion in cash and marketable securities, but approximately 93 percent of that amount is held outside of the United States. Those foreign reserves would be subject to up to a 35 percent corporate tax rate if repatriated, so Apple turns to the debt markets to raise money at a cheaper cost.

Apple will use the $7 billion raised to continue funding dividend payments and share buybacks. Apple expanded its share repurchase authorization by an additional $50 billion this week, and the company says it expects to spend a total $300 billion in cash under its capital return program through March 2019.

Apple also typically puts the money towards operational expenses, repayment of earlier debt, and acquisitions of other companies. Then there's Apple's new $1 billion advanced manufacturing fund announced by CEO Tim Cook earlier this week, which will need to be funded eventually as well.

Apple may not have to raise as much through debt markets in the future, as U.S. President Donald Trump has expressed his desire for a tax holiday that would allow domestic companies to repatriate foreign cash at a discounted tax rate. Reports have suggested the rate could be as low as 10 percent.

Interestingly, unlike many of Apple's recent bond offerings, today's sale does not include any notes with 30-year maturities. Some analysts believe Apple may be avoiding long-term bonds given the possibility of a tax holiday.

Peter Tchir of Brean Capital in a note to clients obtained by Barron's:
This is the 7th time Apple has come to market with a big slate of bonds. They started in 2013 with no debt and should be at about $100 billion by the end of today. In each of those prior deals they issued 30 year bonds - but not this time. Is it uncertainty over taxes? Talk about an ultra-bond on treasury side? Repatriation? Maybe it means nothing, but I think it is at least mildly curious that they aren't doing a new long bond here.
Apple's financial chief Luca Maestri this week acknowledged "there is a lot that still needs to happen there," in regards to the Trump administration's tax plans. "The program we're announcing today reflects the current tax legislation in this country," he said. "Obviously we will reassess our situation if things change."

Note: Due to the political nature of the discussion regarding this topic, the discussion thread is located in our Politics, Religion, Social Issues forum. All forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

Tags: bonds, corporate tax, Donald Trump
[ 93 comments ]


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dannys1
31 months ago

Where do I sign up for this tax holiday when it's available ...


Sorry, it's for billionaires only.
Rating: 23 Votes
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unobtainium
31 months ago
The tax holiday shouldn't give them a lower rate than regular Americans have to pay on overseas income.
Rating: 14 Votes
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applesith
31 months ago
For all of Tim's Trump bashing, he really should have Apple pay the 35% rate and bring the money in.
Rating: 13 Votes
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shareef777
31 months ago
Where do I sign up for this tax holiday when it's available ...
Rating: 9 Votes
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1applerules1
31 months ago
Promises made, promises will be delivered. Tax cuts for everyone! MAGA!!
Rating: 9 Votes
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WarHeadz
31 months ago
Trump probably doesn't remember he ever said that. He has the memory of a goldfish. I wouldn't count on him making good on it.
[doublepost=1493992748][/doublepost]

Apple may not have to raise as much through debt markets in the future, as U.S. President Donald Trump has expressed his desire for a tax holiday that would allow domestic companies to repatriate foreign cash at a discounted tax rate. Reports have suggested the rate could be as low as 10 percent.

Rating: 7 Votes
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melgross
31 months ago

I'm not a tax expert, can anyone explain the benefits behind moving cash stateside? Can't Apple spend the money just the same regardless of what country the bank account is located in?


It's stated in the article. Profits earned outside the US are subject to the US tax. The US is about the only country that taxes profits from foreign sources. So if Apple brings those profits back, they're subject to a tax that can be as much as 35%. Borrowing money for Apple is cheap, about 2-3%. So it costs a lot less to borrow the money for use here, in the US, than bringing those profits back.

So no, they can't just spend the money no matter which bank it's in without paying the taxes. And most of their money isn't in cash in a bank, it's in short term, medium term and long term investments,
Rating: 6 Votes
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RogerWilco
31 months ago

Actually, that's not true. Any American who earns income abroad is subject to this tax when bringing their income home. It's the difference in the taxes they pay locally, wherever they are, and the higher US tax. If there is a change in that law, and Trump wants to have it done, and Congress agrees, it could affect every American working, and being paid, out of the country.

Perhaps so, but the machinations used by Apple (and other large multinationals) to move and shelter their profits are not available to "any American". The IRS is going to great lengths to monitor and penalize individuals who try and evade taxes through offshore accounts.
Rating: 5 Votes
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shareef777
31 months ago

Actually, that's not true. Any American who earns income abroad is subject to this tax when bringing their income home. It's the difference in the taxes they pay locally, wherever they are, and the higher US tax. If there is a change in that law, and Trump wants to have it done, and Congress agrees, it could affect every American working, and being paid, out of the country.


If you believe that, then I've got a wall to sell you!
Rating: 5 Votes
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gnipgnop
31 months ago

At current rates it's basically free money.


This is what these kinds of articles always fail to mention: large corporations like Apple are basically being paid by the government to borrow money due to the current rock bottom interest rates. That's why it's so cynical for companies to complain about the repatriation taxes. They're already getting an unbelievable deal from the government in the form of bond rates vs. interest rates. Giveaways on top of giveaways...
Rating: 4 Votes

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