Counterparties: Apple’s superlative borrowing
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Apple has a long list of superlatives to its name; this week, it added two more titles to the roster. Itâ€™s now the worldâ€™s biggest dividend payer, and also the company behind the largest investment-grade corporate-bond offering of all time. Todayâ€™s $17 billion in bonds, which attracted an order book of $50 billion, constitute Appleâ€™s first debt issuance since 1994; the company ended up raising more money than even the Facebook IPO did.
All of the proceeds will end up in the pockets of shareholders: Apple plans to return $100 billion in total by the end of 2015, through stock buybacks and bigger dividends. That makes the offering the latest act in Appleâ€™s recent history of legal tax avoidance. Over two-thirds of the companyâ€™s $145 billion cash pile is located overseas, and borrowing money, rather than repatriating overseas cash, will help Apple avoid a tax hit of up to $35 billion.
Apple issued six different bonds in total; the pricing was aggressive, with the new three-year bonds coming at a yield of 0.51%, just 20bp over Treasuries, and the 30-year bonds pricing 100bp over, at 3.88%. Thatâ€™s in line with the triple-A yields commanded by Microsoft; Apple is rated one notch lower, at AA+.
Appleâ€™s decision to tap the debt markets is emblematic of the continued surge in corporate bond sales this year (a â€śbond bacchanalia,â€ť as Bloomberg put it). Companies are taking advantage of historically low interest rates — Matthew Yglesias points out that Apple is borrowing at a negative real yield — and an excess demand for safe assets. So far this year, theyâ€™ve borrowed $1.39 trillion: thatâ€™s almost $17 billion per day. – Peter Rudegeair
On to todayâ€™s links:
The studies behind austerity are weak. The study behind â€śuncertaintyâ€ť is worse – Ezra Klein
Americans don’t care as much about inequality as academics would like – Real Clear Markets
Does income inequality lead to political inequality? – Bruce Bartlett
And, of course, there are many more links at Counterparties.