The first stage of Apple’s plan to spend $100 billion in share buy-backs and increased dividends was completed yesterday as Apple sold $17 billion’s worth of corporate bonds – the world’s largest corporate debt sale.
Although Apple has a cash balance of $145b, much of this money is held in overseas subsidiaries, and Apple would have to pay tax on it to bring it back to the USA. It is cheaper for it to borrow the money instead …
Unsurprisingly, demand was high, with the Financial Times reporting that demand for the bond reached $52b.
That confidence in Apple’s ability to easily repay the debt was reflected in the extremely low cost of the debt.
“As a bond investor you don’t want to buy debt which is being used to fund share buybacks, but in the case of Apple, it’s a drop in the ocean compared to the size of their overall cash holdings,” said Michael Kastner, principal at Halyard Asset Management.
A basis point is 0.01%, so Apple will pay rates ranging from 0.45 percent per year on a three-year bond to 3.85 percent on a 30-year bond.
