Apple to tap debt markets yet again

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Like clockwork, every time Apple's (AAPL) domestic cash position dwindles to near $15 billion, it promptly conducts a bond offering in order to fill its coffers to continue its aggressive capital return program. Just days after reporting a blockbuster fiscal fourth-quarter earnings release, the company has signaled its intention to tap the debt markets yet again.

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Apple filed a preliminary prospectus this morning for the offering, which is currently expected to include six tranches. The Mac maker has not yet specified the size of the offering and the interest rates have also not been determined yet.

Ticker Security Last Change %Chg

That's a lot of paper

The notes will come due in November 2019, November 2020, January 2023, January 2025, November 2027, and November 2047. Bloomberg reports that the 2047 notes may price with a spread of around 1.125% over comparable Treasury bonds. For reference, 30-year Treasury bonds are currently yielding around 2.8%, which suggests Apple's 30-year notes may price around 3.925%. Here's how that potential rate would compare to other Apple bonds that mature after 2040.

Maturity

Coupon

Last Sale

Yield

May 2043

3.85%

101.8

3.74%

May 2044

4.45%

111.1

3.78%

February 2045

3.45%

97.3

3.6%

May 2045

4.375%

109.9

3.79%

February 2046

4.65%

113.8

3.84%

August 2046

3.85%

101.5

3.76%

February 2047

4.25%

108.2

3.77%

September 2047

3.75%

100.3

3.73%

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Apple raised approximately $7 billion worth of debt last quarter, which included $2 billion in its first Canadian bond offering that was followed by $5 billion in September. Total term debt on Apple's balance sheet now stands at $103.7 billion, in addition to approximately $12 billion in commercial paper.

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After repurchasing $7.5 billion worth of stock last quarter, which included $4.5 billion in open market purchases and a $3 billion accelerated share repurchase (ASR) program, Apple has bought back $166 billion out of its $210 billion repurchase authorization. That authorization was boosted from $175 billion to $210 billion in May alongside fiscal second-quarter earnings; Apple updates its capital return program on an annual basis around April or May of each year.

Debt and taxes

Over the past year, the chances of some type of tax reform that includes more favorable repatriation rates has increased significantly. Republicans unveiled a tax bill last week that includes a significantly lower one-time repatriation rate of 12% on all foreign cash. Being the largest hoarder of foreign cash in the world by far, Apple potentially stands to be the greatest beneficiary if the bill were to pass. The company now holds $252.3 billion (94% of total cash) overseas.

Apple has lobbied for tax reform for years, with CEO Tim Cook arguing that the current 35% repatriation rate is far too high. Cook has said that Apple would gladly bring some of that cash home for domestic investment (and capital returns) if only the repatriation rate was "reasonable." The chief executive has previously said a rate in the "single digits" would be reasonable, but more recently acknowledged that 15% to 20% may be more likely.

But Apple's capital return program can't wait on congressional action. It needs that domestic cash now.

 

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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.