Apple debt issuance would dwarf that of tech rivals
NEW YORK, April 24 (IFR) - Apple Inc could go from being the only major technology company with no debt on its books to one that issues as many bonds as a major global bank, as it seeks to fund its $100 billion capital reward for shareholders unveiled on Tuesday.
Apple has $145 billion of cash, but "only" $45 billion of that is on hand in the U.S., according to some estimates. That is not enough to pay for plans to buy back $60 billion of shares over the next three years.
That means the company will have to issue about $15 billion to $20 billion a year for the next three years, according to credit research firm CreditSights.
"Its shareholder returns will require ... total debt in the order of $55 billion," CreditSights said in a research report.
At that level, Apple's issuance would dwarf the levels that other technology companies such as Microsoft and Google have in bonds outstanding, and could make it nearly as big an annual issuer - at least for the next three years - as Citigroup, which issues $20 billion to $25 billion annually.
Yet even with that volume - and the fact that it failed to garner a triple-A rating from either Standard & Poor's or Moody's - Apple is expected to set new records for low-cost funding when it makes its debut.
"I would be shocked if Apple's bonds were anything but phenomenally well-received," said one debt capital markets banker.
"They have $60 billion of EBITDA and $140 billion or more of cash and no debt on their books. They don't have to work hard to be anything other than one of the best credit stories out there."
S&P awarded the company an AA+ rating, while Moody's rated it Aa1. Apple announced the plan to reward shareholders as it posted its first quarterly decline in profit in more than a decade. For more, see
Many believe Apple could sell bonds at tighter yield spreads over Treasuries than even triple-A companies such as Microsoft.
Apple could issue 10-year bonds at around 45 basis points to 50 basis points over Treasuries, according to some bankers, or at least slightly better than the 58 basis points Nike paid this week for its 10-year bond.
Microsoft's 10-year bond maturing in 2022 trades at around 60 basis points over Treasuries, or a curve-adjusted spread of 70 basis points if it were a 2023 maturing bond spread over the current 10-year Treasury.
Apple would be able to get tighter spreads on its new bond issues than IBM, for instance, because it has no debt outstanding - and because its need for debt is for a finite period of time, for a one-off event, rather than for general corporate purposes.
IBM, for example, has $33 billion of bonds outstanding. Microsoft has $14 billion. Even if Apple issued $55 billion, it would still have less than 1x gross debt leverage to EBITDA, according to CreditSights.
Debt capital markets experts expect Apple would consider following a similar strategy as the big global banks when it comes to bond issuance.
To get the tightest possible funding, the banks break their debt needs up across multiple currencies and maturities every year.
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