Apple Finalizes $7 Billion Five-Part Bond Sale

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Apple has raised $7 billion in debt through a five-part bond sale of both fixed and floating rate notes, according to the company's final pricing term sheet filed with the U.S. Securities and Exchange Commission on Friday.

The five-part sale includes:
$350 million maturing in 2019 with a floating interest rate based on three month LIBOR plus 14 basis points
$1.15 billion maturing in 2019 with a fixed 1.1% interest rate
$1.25 billion maturing in 2021 with a fixed 1.55% interest rate
$2.25 billion maturing in 2026 with a fixed 2.45% interest rate
$2 billion maturing in 2046 with a fixed 3.85% interest rate
The transaction was underwritten by Goldman Sachs, J.P. Morgan Securities, MLPF&S, and Deutsche Bank Securities, among others.

Apple held $231.5 billion in cash and marketable securities, partially offset by $68.9 billion in long-term debt, as of the fiscal third quarter, 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, particularly given its low-risk Aa1/AA+ bond credit rating.

Apple typically uses the capital raised to fund dividend payments to shareholders and its share buyback program, which the company expanded to $175 billion in April. At the time, Apple said it expects to spend over $250 billion in cash under its capital return program by the end of March 2018. It also uses the capital for general corporate purposes, such as the repayment of earlier debt and acquisitions.

Article Link: Apple Finalizes $7 Billion Five-Part Bond Sale
 

neuropsychguy

macrumors 65816
Sep 29, 2008
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The wonders of capitalism. Cheaper to borrow money than spend your own savings.
That isn't because of capitalism (only). It's an issue of much of Apple's cash being "stuck" outside the U.S. because of less than ideal U.S. tax laws. Corporate taxes, some people argue, are the opposite of capitalism (or at least interfere with capitalism). A common definition of capitalism is: "an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state". With that in mind, one can argue that it's cheaper for Apple to borrow money because of statist/socialist/communist economic policies instituted by the federal government. A purely capitalistic society would have no business taxes. It would then be cheaper for Apple to bring the money back to the U.S. rather than borrow.

Anyway, that's enough politico-economic discussion from me today.
 
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adamjackson

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Jul 9, 2008
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I'm not a financial expert but it seems like Apple's stock is very undervalued. They're basically putting billions back into the stock in buy-backs and dividends and stock is trading very low as a part of EPS compared to other tech companies. It's like wall street is constantly in this mode of "apple is 6 weeks away from dying" and afraid to go in big. the stock split didn't help, ASP of the iPad and iPhone didn't help, buy backs aren't helping, dividends might be helping but not in a huge way.

Where is the pro-AAPL discussion? Or is them taking on massive debt despite their overseas holdings causing more problems for them in stock price because investors see the bonds as a liability?
 

MikhailT

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Nov 12, 2007
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It used to be a good thing that Apple was debt free, especially what happened back in 90s. Now, they have ~$80 billion dollars in debt, which is insane. They are not going to increase their cash reverse until they have a brand new technology and cars won't be it. This means Apple is just burning through their cash reserve as growth is slowing down on everything, Apple will not have a hyper-growth % anymore as all markets they're in are saturated (except for watch).

I hope Apple doesn't repeat the 90s but everything is telling me that they're going there and it is going to hurt worse than before.
 
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ArtOfWarfare

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Nov 26, 2007
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I see the year 2046 in this article... doesn't that make the assumption that Apple will still be around in 2046?

2019 and 2021 seem like safe guesses that Apple won't vanish before then. 2026 doesn't seem unreasonable... although 10 years is a long time in tech. 2046? That gives us enough time that a company that hasn't even formed yet somehow undoes Apple.

By 2046, the singularity may have occurred already.
 

Porco

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Mar 28, 2005
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Entirely legal and financially responsible I'm sure, but ethically and morally questionable.

I'm surprised this isn't in PRSI.
 

maflynn

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May 3, 2009
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The wonders of capitalism. Cheaper to borrow money than spend your own savings.
The issue is much of their money is over seas and it Apple will be charged 40% taxes on repatriating the funds. They have no choice in borrowing the money, they cannot use the international funds for domestic tasks
 

Rocketman

macrumors 603
People often complain about Apple using different jusrisdictions to reduce tax owed. Apple operates in a whole bunch of countries. Some for manufacturing employment, some for retail, some for distribution, and some for IP. Perfectly normal activity. The complainers are wrong, but . . .

The complainers want to bring it back for the purpose of taxing it. The current capital gains tax here is 23.8%. The income tax around 45% including state and federal, and "Obamacare" add-ons. They want more tax, not more investment. Where it is now, it is providing more investment with minimal taxation. In order to use it in the USA where they want they have been taking out massive loans, about $70B against those assets in various currencies, to invest the loan proceeds in the USA which is legal without taxation. The cost of course is the massive interest they pay on an absolute basis, if not a relative basis. That is a cost.

The good news from all this is Apple has learned to bypass wacky US Federal tax laws to be able to invest MORE in the USA than they otherwise could.

New balance: $75.9B

About 1/6 short term, 1/6 5 year, 1/3 10 year and 1/3 30 year overall. So it will roll off over the next several years to a notable degree. The return on average assets is currently 10.24%, so the payment is fully covered by growth.

Time for more GBP bonds.
 
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iamgalt

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Jul 25, 2012
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So many people complain about Apple keeping their money outside the U.S. If they want that money back here, then they're going to have to recognize that having one of the highest corporate tax rates in the world isn't going to keep any companies money here. If we can ever get rid of politicians that think they can spend our money better than we can (on both the left and right), and are trying to tax us into poverty, then there may be a chance of Apple bringing it back to the U.S.
 

macfacts

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Oct 7, 2012
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People often complain about Apple using different jusrisdictions to reduce tax owed. Apple operates in a whole bunch of countries. Some for manufacturing employment, some for retail, some for distribution, and some for IP. Perfectly normal activity. The complainers are wrong, ....
ALL of Apple's IP (patents) are invented in USA from workers in USA. Apple undervalues those patents when selling them to an offshore shell company, in Ireland. This is done to rudeuce profits in USA, which leads to less taxes having to be paid in USA.

That shell company then licenses those patents at normal prices to Apple with profits from those royalties being taxed in Ireland.

It maybe legal (fb is currently under investigation by the IRS for same scheme
http://money.usnews.com/investing/articles/2016-07-29/facebook-fb-could-owe-5-billion-to-the-irs ) but is still sketchy.
 

Reader999

macrumors newbie
Jul 29, 2016
2
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I'm not a financial expert but it seems like Apple's stock is very undervalued. They're basically putting billions back into the stock in buy-backs and dividends and stock is trading very low as a part of EPS compared to other tech companies. It's like wall street is constantly in this mode of "apple is 6 weeks away from dying" and afraid to go in big. the stock split didn't help, ASP of the iPad and iPhone didn't help, buy backs aren't helping, dividends might be helping but not in a huge way.

Where is the pro-AAPL discussion? Or is them taking on massive debt despite their overseas holdings causing more problems for them in stock price because investors see the bonds as a liability?
From the corporate finance perspective, raising debt gives positive signaling than raising capital through equity. Raising debt is a good thing for Apple if they can keep up its growth (assuming Apple Car). This will increase its financial leverage and tax shield. It is cheaper to borrow debts than issue more equities because debts - bonds only require a marginal premium above TBill due to its AA rating, but equity holder will require much more return to their cash than bonds holders.
 
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Rocketman

macrumors 603
ALL of Apple's IP (patents) are invented in USA from workers in USA. Apple undervalues those patents when selling them to an offshore shell company, in Ireland. This is done to rudeuce profits in USA, which leads to less taxes having to be paid in USA.

That shell company then licenses those patents at normal prices to Apple with profits from those royalties being taxed in Ireland.

It maybe legal (fb is currently under investigation by the IRS for same scheme
http://money.usnews.com/investing/articles/2016-07-29/facebook-fb-could-owe-5-billion-to-the-irs ) but is still sketchy.
Either it is legal or it is not, and Apple is not afraid to go to any court to defend it. Lots of IP is created by Europeans and others and patented also in USA. There are millions of tech patents, hence the presence of patent trolls. Selling the patent before you use it and make it more valuable is smart. Especially if a firm you sell it to, you have a beneficial interest in.
 

adamjackson

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Jul 9, 2008
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From the corporate finance perspective, raising debt gives positive signaling than raising capital through equity. Raising debt is a good thing for Apple if they can keep up its growth (assuming Apple Car). This will increase its financial leverage and tax shield. It is cheaper to borrow debts than issue more equities because debts - bonds only require a marginal premium above TBill due to its AA rating, but equity holder will require much more return to their cash than bonds holders.
Thanks for the reply so Apple's bottom line is healthier due to bonds being a lower effective tax-rate. Then that sounds pretty good but you're right, that's assuming Apple keeps making money quarter after quarter.
 

briloronmacrumo

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Jan 25, 2008
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I see the year 2046 in this article... doesn't that make the assumption that Apple will still be around in 2046?
Bonds often ( usually ) have "call" provisions which allows the borrower ( Apple ) to pay off the bonds early if they choose. These bonds are possibly ( because I haven't seen them and don't know the details ) callable in 2026 and/or 2031. Typically a borrower calls bonds because market conditions ( such as when interest rates decrease relative to the bond rate but there could be other reasons ) change.
 

sudo1996

Suspended
Aug 21, 2015
1,496
1,182
Berkeley, CA, USA
Man, those interest rates are low, but it's so safe. Still, I'd rather keep money in S&P500 long-term.
[doublepost=1469921479][/doublepost]
Entirely legal and financially responsible I'm sure, but ethically and morally questionable.

I'm surprised this isn't in PRSI.
Considering that they're avoiding a ridiculous 40% tax rate, and some of the taxes would've gone to supporting Israel, I call it the moral high road.
 
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Rocketman

macrumors 603
Bonds often ( usually ) have "call" provisions which allows the borrower ( Apple ) to pay off the bonds early if they choose. These bonds are possibly ( because I haven't seen them and don't know the details ) callable in 2026 and/or 2031. Typically a borrower calls bonds because market conditions ( such as when interest rates decrease relative to the bond rate but there could be other reasons ) change.
Call provisions are standard, but are only exercised when bond rates drop. We are at world record lows. Not likely. More likely they are locking in historically low rates and we can expect to see further offerings. In fact if they had a debt ratio of many corporations, they could easily issue 3x as much debt additional ($210B).

What would you do with $210B? If you bought the entirety of the dividend paying S&P 1000 and Russell 1000 you would have money left over. It would cover your interest x2-3. Hmmmm.
 

TallManNY

macrumors 601
Nov 5, 2007
4,354
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Call provisions are standard, but are only exercised when bond rates drop. We are at world record lows. Not likely. More likely they are locking in historically low rates and we can expect to see further offerings. In fact if they had a debt ratio of many corporations, they could easily issue 3x as much debt additional ($210B).

What would you do with $210B? If you bought the entirety of the dividend paying S&P 1000 and Russell 1000 you would have money left over. It would cover your interest x2-3. Hmmmm.
Crazy. Though Apple couldn't borrow at that size at these rates. It is because they have comparatively little debt that these rates are so low.

But it is an insane amount of money. Even $1 billion in cash is enough to start hundreds of companies or projects.
 

Rocketman

macrumors 603
Crazy. Though Apple couldn't borrow at that size at these rates. It is because they have comparatively little debt that these rates are so low.

But it is an insane amount of money. Even $1 billion in cash is enough to start hundreds of companies or projects.
You wouldn't have to own 100%. You could own 55% and have a 45% float. Yes the rate would rise slightly as the debt ratio increased, but starting at -0.25%, I am not concerned. It would be like buying rental house for 30% down. The income covers the finance plus a handy profit and the cap gain on sale is impressive.

All that stock they have been buying back, treasury stock, once worth over $125/share again is like a big pile of increased value currency ripe for purchases.

They have purchased $175B of shares somewhere near $100/ share. Once it goes to $125 those same shares will be worth $219B. That is assuming no new debt. If they also obtain $100B in new debt, the funds available for acquisitions and internal investments is $319B, only 1/3 of which costs any interest at all.

Heck, they could pre-fund a conglomerate similar to Berkshire (NYSE:BRK.A $354B Market Cap) so it is off the AAPL balance sheet. Patient capital.

The market cap of F or GM is $50B. Pocket change.

Due to the Obama administration zeroing out ALL GM stock and bond holders in 09 or so, all capital in it now is so-called "hot capital". Heck the government owned most of it until very recently.
 
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ssgbryan

macrumors 65816
Jul 18, 2002
1,390
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When we stop punishing the productive by higher tax rates, the this craziness will stop.
You mean like when we built Pax Americana and the middle class back in the 50's and the top tax rate was 90%?

Apple isn't being "punished".
 

Rocketman

macrumors 603
When the marginal rate was between 70-90% there were a bunch more deductions than now. In fact there were a bunch of TAX CREDITS for things like oil exploration, low income housing, cattle ranches, etc. I used to do financial planning and I remember when things changed under Reagan. All of a sudden the whole market was looking for productive investments rather than pure tax dodges. I watched in real time over 2-3 years as the economy shifted, and drastically increased net tax revenues, productivity, and direct productive deals and tasks.

Interest rates dropped drastically too. Because of economic activity increasing, not because some federal regulator picked a number out of the air near zero like now.

He reduced the marginal rate to 28% (1986) by killing all the wacky tax dodges. Everybody on all sides were much happier. Except commission driven salesmen. :D

That's the current House Congressional plan. Further reduce tax dodges and reduce the marginal rates (15-20%). Despite the D talking points against "tickle down economics", it has proven to work under practice. Under Clinton/Gingrich, too (1992). So, right twice! Let's make it thrice. Check the attached chart! I guess we should not forget Democrat John F. Kennedy also did the same thing with great success! Fourth time is a charm.

Trickle down government has proven the exact opposite. (linky 2) The recent D experiment from 2009-11 (with CR's after that) has shown with real data that the biggest reverse stimulus plan ever, has killed growth, money velocity, and productive activity. Companies are buying back stock in droves with their earnings. Ralph Nader compares that to wheelbarrows of cash being shifted into a bonfire.

These 2010-11 rate changes were done under a D House, D Senate and D President. Took effect FY 13. In 2011 when the Tea Party came to congressional power with a voter mandate to lower taxes, all spending bills INCLUDING the annual budget bill was stopped in the D Senate by D Minority Leader Reid under an obscure rule (bypassing the 51 majority rule for budgets, in a senate with 52 R members), until 2016 when a 2 year CR was agreed to by R leaders, cementing the D budgets going forward until after the election.

Federal Taxes: 2011-12 2013+ Change
Capital Gains 15% 23.8% +58.7%
Dividends 15% 43.4% +189.3%
Ordinary Income 35% 43.4% +24.0%


EVERYONE is already paying MORE THAN their fair share.

Here is what that causes:
Yellow line money velocity
White line corporate earnings. Note the stunted growth lately.
 

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