Apple Issues Bonds For The First Time

May 1, 2013
By Vlad Karpel


Apple announced its very first bond sale on Tuesday, April 30. It plans to sell $15 billion to $17 billion worth of bonds as part of its strategy to return more profits to shareholders. Many financial advisers think investors stay away from Apple bonds because the yield is so meager. Also, with the dynamic and competitive technology sector, who’s to say the iPhone will still be around when the bonds mature?


Wall Street Journal predicts that Apple’s bonds would pay about 0.9% to 0.95% more than 10-year Treasurys. However, yields on Treasury bonds recently fell to 1.64%, their lowest of the year. By comparison inflation is about 1.5%. However, Apple bonds are top-rated. It is rated Aa1 by Moody’s and AA+ by Standard & Poor’s. This is mainly because Apple has $140 billion cash sitting around which makes even $17 billion look easy to repay. In 2008, nearly 40% of the bonds in the iShares IBoxx $ Investment Grade Bond ETF, an index fund that tracks corporate bonds, were rated double-A or higher, according to Morningstar. Today less than 15% are rated that high.

Microsoft issued 10-year bonds that yielded 0.7 percentage points above 10-year Treasurys. Microsoft bonds were rated slightly higher than Apple, AAA.

Apple’s $5.5 billion chunk of 10-year debt, which matures in May 2023, was the most-traded security on the bond platform MarketAxess, closely followed by its other debt. The bonds were priced to yield 2.415% but yielded on average 2.378% late Wednesday. Microsoft’s 10-year debt traded Wednesday to yield 2.35%. Some $2.09 billion of Apple trades took place Wednesday against total trading of $13.40 billion, or 15.6% of all trades.

The bonds maturing further out have been off the shelves, as the notes on the shorter end of the yield curve tended to get bought by investors who want to hold on to the debt, said Richard Saperstein, managing director at Treasury Partners at HighTower.

As exciting as it may be, Apple bonds may not be available to small investors. Goldman Sachs Group and Deutsche Bank AG are overseeing Apple’s bond issue and they are looking out for institutional investors that can buy large blocks of bonds. Eventually, the institutional investors can sell these bonds to retail investors in the market. Goldman Sachs Group Inc. earned $38.3 million and Deutsche Bank AG got $9.3 million for underwriting the first and largest-ever debt issuance by a company, Tuesday’s $17 billion offering by Apple Inc.

Apple issued the bonds to help fund its plan to return $100 billion to shareholders, announced last week. Though the technology company has $144 billion in cash, much of that is held overseas. By selling bonds, it can avoid having to pay taxes on the repatriation of those funds.

On the other hand, Apple stock  trades at roughly $444, down from its $700 high last fall. However, Apple is still generating a lot of sales of iPhone, iPad, and iPods. This cash-generating stock is set to receive major returns by 2014 and 2015 and share buyback is on the way. Now, that Tim Cook has taken care of the financials, he should probably go back to software and hardware dirty jobs. Surely, consumers and investors will be delighted.

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