Apple's (NASDAQ: AAPL) total debt continues to swell as it waits patiently for the possibility of a tax repatriation holiday that could reduce its need to issue paper. At the end of last quarter, Apple was sitting on $108.3 billion in total term debt and commercial paper. The company's domestic cash position, which funds capital returns, has now fallen to $15.5 billion.
Time for a refill!
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Need some debt, eh?
The Mac maker is now tapping the Canadian bond market for the first time, looking to raise 2.5 billion Canadian dollars ($1.9 billion). Unlike prior offerings that have included multiple tranches, this is a single batch of notes that carry a 2.513% fixed coupon and mature in August 2024. That coupon rate represents an 80-basis-point spread over Canadian government bonds. The offering was conducted as a private placement to qualified institutional investors, and scored an Aa1 rating from Moody's and a comparable AA+ from S&P, the second-highest possible ratings behind the coveted AAA rating. (There are only two U.S. companies that enjoy AAA status.)
Apple says it intends to use the net proceeds for "repurchases of our common stock and payment of dividends under our program to return capital to shareholders," in addition to "general corporate purchases." In other words, this is really about capital returns.
Can't stop, won't stop
In May, Apple provided its annual update regarding its capital return program, adding $50 billion to the overall program. Of that total, $35 billion was allocated to share repurchases with the remaining $15 billion to be set aside for dividend payments.
The good news is that by taking on debt to buy back equity, Apple is able to lower its overall weighted average cost of capital (WACC). Debt capital is cheaper than equity capital, and although interest expense is more tangible than the cost of equity, Apple can easily afford those interest expenses.
In fact, the dividends and interest that Apple earns on its massive investment portfolio more than cover the cost, so the net is still positive. Interest and dividend income last quarter was $1.3 billion, more than enough to cover the $602 million in interest expense. The difference between those two figures shows that Apple has plenty of room to take on more debt before the related interest expense becomes a drag on the income statement.
Unless this elusive tax repatriation holiday materializes -- which might take a while given the current political and legislative climate -- Apple's debt will only continue to grow. At least the tech titan can afford it.
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