So far Apple‘s financial engineering is appearing as appealing to investors as its product engineering is to consumers. Buyers are, by all accounts, rushing to get in line for a piece of the company’s $17 billion investment-grade bond offering, Apple’s first reversion to the bond market since clearing its books of such debt more than nine years ago.
Reports say the offering — $3 billion in floating rate notes and $14 billion of fixed rate securities in six parts with maturities from three to 30 years (will iPads and iPhones, which accounted for 70% of Apple’s sales last year, even exist then?) — is already at least three times oversubscribed. And that just at the end of the first morning.
That level of interest isn’t unexpected. The multipart offering was designed to appeal to all stripes of institutional investor, who as a group are starved for investment-grade corporate “names” for their portfolios. The issue has been rated just one notch below the highest credit grade by Standard & Poors’ at AA+ and Moody’s at Aa1.
Those are cheap treats for Apple. Once final terms are set the company could well end up paying even less for its money than Microsoft did last week, when it raised $1 billion with a 10-year bond that yielded just 70 basis points above U.S. Treasuries.
Apple wants the money to burnish its fading share price through $100 billion-worth of dividends to shareholders and stock buy-backs through 2015. The company has cash enough to do that without resorting to the bond market, but $102.3 billion of its $145 billion of cash reserves are sitting overseas. Factor in the tax liability of repatriating that money and the tax deduction available on domestic interest payments, and it works out far cheaper to borrow against the pile than give it away, even after paying Goldman Sachs’ and Deutsche Bank’s management fees.
Those, though, will likely be rock-bottom (by investment bank standards) for the opportunity to share in the halo effect of what will be the largest corporate bond sale by an investment-grade issuer. On Wall Street, the name lets Apple buy at a discount — just as it allows selling at a premium on Main Street.