Apple Has Historic Bond Sale with Investors Highly Eager to Purchase Debt

By Ed Silverstein May 01, 2013

Why did Apple sell $17 billion in bonds when it has so much cash available?

The cash was borrowed so the company could return $100 billion to shareholders by 2015, The Wall Street Journal reported.

“Apple has a huge cash stockpile, but much of its money is overseas,” The Journal explained. “Raising cash in the bond market helps Apple avoid the big tax bill that would hit if the company brought its cash back to the U.S.”

Not only the company can avoid some taxes by the bond sale, companies also can write off interest payments if they borrow.

"When you think about it, it's kind of strange," Patrick Moorhead, an analyst at Moor Insights & Strategy, told The Los Angeles Times. "You're sitting on a pile of cash, but you're borrowing money to give it back to shareholders. It's really a kind of testament to our screwy tax laws."

History was made, too. On Tuesday, Apple set a record for the largest corporate bond sale ever, according to news reports.

The bond sale marked the first for Apple in about two decades.

One advantage Apple had was the current low rates for Treasury interest, which keeps corporate debt lower.

Investors were very interested too – as they wanted to get more than three times the amount available – given the low risk of Apple bonds and appeal of the company. "Apple bonds are a low-risk alternative to Treasury...bonds in this yield-grabbing environment," Mark MacQueen, a portfolio manager at Sage Advisory Services, told The Journal. He was among those purchasing bonds from Apple.

“Companies that have very little to no debt can be opportunistic when rates hit new lows, and Apple is doing exactly that," Jason Graybill, who manages bonds at Carret Asset Management, told The Journal.

Apple’s bonds got ratings of just under triple A. They were rated AA-plus by Standard & Poor's Ratings Services and Aa1 by Moody's Investors Service.

Apple is not the only major company with cash overseas. Moody's Investors Service estimated that U.S. companies in March had $1.45 trillion in cash overseas at the end of 2012. That’s 10 percent more than what they had stored overseas during 2011.

“The tech sector accounted for the biggest chunk, with $556 billion stashed abroad,” The L.A. Times reported. “The five companies with the largest overseas stockpiles were Apple, Microsoft Corp., Google Inc., Pfizer Inc. and Cisco Systems Inc.”

Meanwhile, Apple is trying to remain a sought-after stock. Apple's stock this week was selling at the lowest levels since 2011 – prompting Russian billionaire Alisher Usmanov this week to buy $100 million worth of shares in the company, news reports said. It was selling for $438.67 late Wednesday morning (ET).

“Apple’s stock is almost 40 percent off its peak in September last year, partly reflecting investors’ concern about slowing sales and profitability at the iPhone and iPad maker and intensifying competition with Samsung Electronics Co,” Bloomberg News added.

Recently, another trend has been more customers moving from MacBooks to iPads, TechZone360 reported. 

Edited by Alisen Downey

TechZone360 Contributor

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