(Corrects share price decline in 11th paragraph)
By John Balassi and Josie Cox
NEW YORK/LONDON, April 30 (IFR) - Apple Inc wowed the debt
markets on Tuesday with the largest non-bank bond deal in
history, offering a whopping $17 billion for sale as the U.S.
computer giant switches strategy to placate restless
Just a week after announcing its first drop in quarterly
earnings in a decade, Apple came to market with the
massive deal to raise funds for an ambitious program that will
return $100 billion in cash to holders of Apple shares.
Sources said investors could barely submit orders fast
enough to get in on the deal from Apple, the only major tech
company without a single penny of debt on its books.
The six-part all-dollar offering attracted more than $50
billion of orders by midday in New York - a massive level of
demand even in the current red-hot climate of the bond markets.
"Apple made its intentions clear that this deal is for
shareholder-friendly activity, but they have tremendous metrics
and brand recognition," Rajeev Sharma, portfolio manager at
First Investors Management Co, told IFR.
"Apple is something everyone wants in their portfolio."
The $17 billion size easily trumps the previous biggest
single deal according to Thomson Reuters/IFR data, a $14.7
billion deal from Abbott Laboratories spin-off AbbVie last
Earlier, a source said potential investors had been told on
Monday that this would be Apple's only bond deal of the year,
apparently scuttling hopes of possible euro or sterling issues -
and helping fuel demand for Tuesday's mega-deal, which was led
by Deutsche Bank and Goldman Sachs.
CHANGING THEIR TUNE
The massive deal caps a milestone week for Apple, which in
seven days has changed tack to satisfy its investor base,
becoming the world's biggest dividend payer and recapturing its
mantle as the world's largest company by stock market value at
Investors unhappy with Chief Executive Tim Cook's previous
reluctance to share any of Apple's massive $145 billion cash
pile with shareholders - and unimpressed by its diminishing
prospects for earnings growth - had been relentless sellers of
Apple's stock since its share price topped out above $705 in
The stock tumbled more than 45 percent from Sept. 21 to
April 19, falling by roughly $320 per share.
But the stock has rallied more than 12 percent in the past
10 days as a new class of income-oriented investor, enticed by
its dividend yield of nearly 3 percent, snaps up shares. They
rose more than 3 percent on Tuesday to over $444.
Expectations for future profit growth have trailed off
significantly in the past year. After 10 years of high
double-digit profit growth, analysts on average now expect a
10-year compound annual earnings growth rate of less than 7
percent, according to Thomson Reuters StarMine, which tracks
RAISING THE CASH
Although the company has a staggering $145 billion in cash,
only $45 billion of that is readily available in the United
States - meaning Apple needs to raise about $60 billion over the
next three years to fund the shareholder capital return plan.
Analysts suggest that hitting the debt markets now makes
sense with interest rates - and thus the cost of raising funds -
near record lows.
But the maker of the iconic iPad and iPhone failed to win
the highest Triple A rating from agencies. S&P rated the company
AA+, while Moody's rated it Aa1.
Nevertheless, the massive investor interest allowed Apple to
tighten every tranche of the deal - from 3-year to a maximum
30-year tenor - by five basis points (bp) from guidance to
The company is offering $1 billion of three-year
floating-rate notes, $1.5 billion of three-year fixed-rate
notes, $2 billion of five-year floating-rate notes, $4 billion
of five-year fixed-rate notes, $5.5 billion of 10-year
fixed-rate notes and $3 billion of 30-year fixed-rate notes.
Analysts had initially suspected that the overwhelming
interest would allow Apple to price the deal even inside last
week's bond from Microsoft.
But some investors said Apple was leaving some spread on the
table so that the deal, which was to price later on Tuesday,
would eventually trade tighter than the Microsoft issue - and so
that Apple could get even better pricing next time round.
"If they are going to come back with another deal, be it in
dollars or another currency, they will need to satisfy a similar
investor type, so you want to leave a good taste in everyone's
mouths," said Matt Duch, senior portfolio manager at Calvert
(Reporting by John Balassi and Josie Cox; Additional reporting
by Danielle Robinson and Reuters News; Writing by Marc Carnegie;
Editing by Ciara Linnane)