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

[abetancort]

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/invest...as-implements-placement-of-7-year-green-bonds

This firm is government owned.

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.

 

[Keane16]

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's not dumb at all. It's an excellent use of their money while rates are still so low, and while the stock is cheap. It also allows them to fund US operations, acquisitions etc. without having to pay the high rate of tax to repatriate the overseas money.

Apple doing them things you suggest would make sense if it was a company in trouble. Specifically if customer satisfaction was low, if sales were tanking etc. But anecdotally from my non-tech friends and from the surveys I see on the internet, customer satisfaction is high. Mac sales are growing (https://www.macrumors.com/2016/02/16/apple-notebook-market-share-2015/).

Posts like yours make me glad we have Cook in charge from both a user and shareholder perspective.

 

[Rocketman]

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.

Wow. That was a complicated straw man argument. I didn't say any of the things you implied, for you to dispute and argue with, but watching you argue with yourself was entertaining. Thanks.

 

[dBeats]

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

They make a crap load more money from their US sales. It's still something like 40% of their revenue. It's like having a good savings account but instead you buy stock on margin because you know you're going to make enough money to cover that loan in a year while making returns on the stock in that same year.

 

[akidd]

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.

Then again there was Robert Maxwell buying Mirror Group shares with the group's pension fund.

 

[StevieD100]

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

There are some of us who are not US residents but own APPL Stock. From memory, the dividends we receive is paid from the Cash held overseas.

 

[castlerock]

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

Tim has been lobbying Obama to lower the corporate tax rate just like every other US exec over the last umpteen years. Hope springs eternal; perhaps the corporate tax rate will be lower when the debt is due or there will be a one-off repatriation tax cut/holiday. Who knows? Or perhaps their hedge fund (Braeburn Capital) has some killer investments they want the cash for. Anyway, right now is a good time to raise debt since yields are so low.

 

[I7guy]

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...
They will not prevent the market to sell… they give investors just more time to sell for higher prices. Perhaps the apple management wants to stabilize also their own shares until the day they are allowed to sell them themselves?
The sellers will be very pleased…. china´s poor and slaved working class will not…nor apple´s customers

Good job in pinning the blame on world issues on Apple. And you know for an absolute fact apples customers actually care about this fairly mundane corporate action.

 

[abetancort]

Wow. That was a complicated straw man argument. I didn't say any of the things you implied, for you to dispute and argue with, but watching you argue with yourself was entertaining. Thanks.

I usually enter into arguments with myself, nothing out of the ordinary here, I don't always give myself the reason because it was my thought...

It's would be like looking in the mirror, just an intellectual one, an argue with that intellectual other from the outside against whatever you thought a millisecond ago to see if it holds true to your own critical thinking if you change your stance without prejudice about who is the author of the thoughts, you or your reflection.

You actually do it too, don't you?