By Josie Cox
LONDON, April 29 (IFR) - Apple took initial steps Monday for
what would be its first debt sale ever, as the US computer giant
lays the groundwork for what would be one of the most
anticipated bond sales of the year.
The company was to begin investor calls today led by
Deutsche Bank and Goldman Sachs, a source familiar with the
situation told IFR, and filed SEC paperwork for a debt offering.
The only major tech company without a penny of debt on its
books, Apple stunned the markets last week by
announcing it could sell debt for the first time to help fund a
$100 billion capital return programme for shareholders.
Any bond offer from the makers of the iconic iPhone and iPad
would be highly sought after by investors, and it is believed
the company could raise funds at a cheaper rate than even Triple
A rated Microsoft.
Apple was not immediately available for comment. It was not
known if the company would look to issue debt in dollars,
sterling, euros or some mix of currencies.
As it unveiled its first quarterly profit decline in more
than a decade last week, Apple said it plans to buy back some
$60 billion of shares over the next three years.
According to analyst estimates, Apple has $145 billion of
cash - but only $45 billion on hand in the US, and thus not
enough to fully fund the share buy-back programme.
Research firm CreditSights said this meant that Apple would
likely have to issue around $15 billion to $20 billion of debt
for the next three years.
The change in strategy comes as Apple gives in to investor
demands to unlock its vast pile of cash while grappling with
uncertainties in the highly fluid tech sector.
While analysts suggest that coming to the debt markets makes
sense now - with interest rates near record lows, the cost of
issuing debt is cheaper than ever - Apple failed to get the
coveted Triple A rating from agencies.
S&P awarded the company an AA+ rating after last week's
announcement, while Moody's rated it Aa1.
"Apple's Aa1 rating is not higher due to Moody's view that
there are inherent long-run risks for any company with high
exposure to shifting consumer preferences," Moody's analyst
Gerald Granovsky said last week.
On a conference call with analysts last week, Apple CEO Tim
Cook acknowledged that the company's long spectacular growth -
which relies heavily on new products - had been tempered.
And the decision to issue debt for the first time is seen by
some in the market as a recognition that the realities of the
marketplace have changed.
"The fact that Apple will spend US$100bn for shareholders is
an admission that their business is maturing," a tech company
coverage banker at a large US firm told IFR last week.
"It's a complete capitulation on the growth story in my
Even so, any debut debt offer from the company - one of the
most instantly recognised brands in the world - will surely be
snapped up by investors.
Because it has no debt outstanding, many believe Apple could
sell bonds at tighter yield spreads than Microsoft, which last
Thursday priced a new US$1bn 10-year bond at 70 basis points
(bp) over Treasuries.
Bankers estimate that Apple could issue 10-year bonds at
around 45bp-50bp over Treasuries.
Given the funding needed and the size of investor demand,
many believe Apple would issue debt across multiple maturities