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. It’s now the world’s biggest dividend payer, and also the company behind the largest investment-grade corporate-bond offering of all time. Today’s $17 billion in bonds, which attracted an order book of $50 billion, constitute Apple’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 Apple’s recent history of legal tax avoidance. Over two-thirds of the company’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%. That’s in line with the triple-A yields commanded by Microsoft; Apple is rated one notch lower, at AA+.
Apple’s decision to tap the debt markets is emblematic of the continued surge in corporate bond sales this year (a “bond bacchanalia,” 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, they’ve borrowed $1.39 trillion: that’s almost $17 billion per day. – Peter Rudegeair
On to today’s links:
The studies behind austerity are weak. The study behind “uncertainty” 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.