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Apple: What A Bond Deal

May 05, 2020 8:24 PM ETApple Inc. (AAPL) Stock56 Comments
Bill Maurer profile picture
Bill Maurer


  • Company borrows $8.5 billion in new offering.
  • Interest rates down significantly from last year.
  • Buyback to continue for quite a while.

One of the major impacts of the coronavirus can be found in global bond markets. Interest rates have plunged to near zero in the US, while a number of countries around the globe have negative rates. For some companies, this is a time to take advantage of the situation, and technology giant Apple (NASDAQ:AAPL) did just that this week.

On Monday, it was reported that Apple was among a handful of companies looking to tap the debt markets. It turned out that the company was doing a four-part deal, with maturities ranging from 3 to 30 years. In the table below, you can see the key items from this deal compared against Apple's previous large dollar-denominated debt deal from September 2019.

(Source: 2019 filing, seen here, and 2020 filing, seen here)

The biggest difference can be found at the short end of the curve, where Apple paid almost 100 basis points less for 3-year debt, despite this part of the deal being twice the size of the previous offering. While savings at the long end weren't as much, Apple was still able to pay 30 basis points less despite this part containing an extra billion for this part of the borrowing.

In total, Apple was able to borrow $8.5 billion this time around, compared to $7 billion in September 2019. Despite the larger offering, total annual interest on this week's deal was just over $135 million, compared to more than $154 million in last year's deal. That nearly $19 million less in interest means that the weighted average coupon this time around was 1.59%, more than 60 basis points below the 2.20% seen last year.

So what are the potential uses for these funds? Well, Apple does have some short-term debt coming due soon. As the 10-Q filing details, there was

This article was written by

Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (56)

terryongarland profile picture
Clearly when you have the balance sheet they do..it just magnifies their position of strength. Clearly an advantage for large companies like AAPL.
Us small business guys live in another universe indeed.
LazyGringo profile picture
If AAPL uses these ultra cheap short term bond loans to buyback stock they actually make an instant profit when you subtract the dividends they no longer need to pay. AAA ratings count for a lot. And Apple is one of the few entities on earth to have a AAA rating, especially now.
JohnB Investor profile picture
As a long-term investor, I'd love to see aapl move their factories here and give their people good wages. Just imagine how you'd be incentivized to buy a product made in this country. As an alternative, at least be a leading company in giving decent wages no matter where the phones are made. Yes, it would mean more expensive phones, but take a hit on executive pay and I bet the difference wouldn't be that significant. It would be very bullish for the company.
@JohnB Investor

Only if it makes any economical sense. They would also need a significant number of skilled manufacturing workers, good luck.

Their competition is manufacturing in China.

Anyway, before end of this century, all manufacturing will be 100% automated.
LazyGringo profile picture
Cant do it. Obama tried with Steve Jobs after he was elected and Jobs explained to him why. An iPhone would cost three times as much and the US workforce just isnt equipped to do that kind of drone work. Plus, in the past few years even in China robots have replaced more than half the workers. The Austin Apple plant is run almost entirely by robots. Also, we shareholders would lose huge if Apple moved many plants to the US. I know it doesnt sound nationalistic, but it is reality. And be advised despite his tough talk, no one has helped China m ore than Trump and he hasnt brogb back a single plant from China in 3 years, in fact he has scared many of them out of the US, like Harley Davidson and Carrier.
terryongarland profile picture
@JohnB Investor ..yes on moving factories to US , but Apple is a global seller, and spreading factories around the world gives them advantages beyond just lower wages.. Yet the idea is good for US workers..for Apple..maybe.
MoeGiguere profile picture
For all the naysayers, this is the best run company in the world.
Olja S.A profile picture
Free money means inflated assets prices. BULLISH.
Jamjack profile picture
Agree, but exercise caution. The balloon will only inflate so much before it bursts.
executive compensation at Disney was the main focus.
IncomeYield profile picture
Bad optics when people are suffering. And they admitted they didn't need the money.
Ryan Schroeder profile picture
Bad optics to issue bonds at market rate? Would it be better if the interest rate was higher..?
Who cares about the topics. They are get a good deal on the cheap debt and benefitting shareholders - which is the key point
whiff profile picture
Tell people who are refinancing their mortgage that it shows "bad optics"
ContyC profile picture
Amazing deal for Apple.
Code Talker Market Analysis profile picture
TAS profile picture
Good deal for Apple.

Anything advantageous for American industry is a two thumbs up in my book. It certainly helps mitigate the lying, hyped BS coming from China in regards to their industry, which turns out deficient masks and ventilators at a premium price to harm the rest of the world.

And what about those bats?
Where are those computers made? Why not create jobs with that money.Did you notice 30M are out of work?
The leadership at Apple is way ahead of any other company in utilizing their balance sheet to their advantage.

Look at what a mess Disney is in at the moment. They might not ever be able to recover with their theme parks and cruise lines in lockdown, and at the bottom of the ocean with no revenues in sight. Add to that their crushing debt load in buying all of the assets of Fox last year. What a mess!!

Despite all the experts telling Apple and Tim Cook what they ought to be doing, it appears they're doing just fine executing on their business model.

Someone on this site published an article recently saying how they were disappointed in the last quarter of services revenues up only 17%. Even though that was a record! But here's what was most amusing to me about that article:

The lockdown for most of the USA didn't even officially begin until March 23, 2020. A week earlier in California. So given that a "mere week" of the shelter in place and work from home orders were commencing, apparently, those real Covid-19 services numbers won't be hitting until they're reported in the next quarters earnings report.

So I'm preparing for "Another Services Revenue Record." How that is a disappointment to anyone who can count is laughable to me! Long Apple!!!
@cuttysark8301 "Look at what a mess Disney is in at the moment. ...
Despite all the experts telling Apple and Tim Cook what they ought to be doing, it appears they're doing just fine executing on their business model."

Over the years, I've heard many arguing that Cook should buy Disney.

Maybe Cook was smart in NOT buying Disney.
Jamjack profile picture
Excellent.. Yes DIS is in a world of hurt, patience is required. Streaming will keep the afloat. I sold half my position in DIS earlier. I think cheaper prices are coming for that one.
When you sit on a mountain of cash, dumb ideas on how to use it are a dime a dozen. There are no significant opportunities for Apple to utilize all that cash so return it to shareholders until something worthwhile comes along.
Flip4Flop profile picture
Use some of this funding to acquire some TaaS company or similar.
John Song profile picture
Apple’s the next Boeing will irresponsible share buyback. Stock will be down significantly in the medium 3-5 year term, keep buying back shares and keep not innovating haha.
Bill Maurer profile picture
@John Song

Apple has net cash of over $80 billion and is currently producing free cash flow of $60 billion a year.
FredStewart profile picture
Share buyback is about the biggest waste of money a company can spend $$ on. Instead how about a special dividend to us shareholders?
lpcongas99 profile picture
I had to go back and reread that at least twice.

Free cash flow of $60 billion, a year...….
georgefelix75 profile picture
Their doing what they can in an environment where they can’t grow. Div increase, $399 phone, buy backs, cheap debt, but other than an acquisition that moves the needle the stock is overvalued. Moving the needle of $1T company isn’t an easy feat.
I expect that over time Apple will sell more product& services, buyback more stock and pay higher dividends. TC is one shrewd CEO.
ChuckXX profile picture
I own AAPL but will just say they certainly saw the bond buying dufus’s coming from a mile away. 30 year bond and the coupon is a paltry 2.65%. People in a few years will say “What the Hell Was I thinking”. But there’s a sucker born every day and this is living proof!!!
Bill Maurer profile picture

Well, with a 10-Year Treasury at 66 bps and the 30-Year at 1.33%, that 2.65% looks like a sweet deal today for income generation.
Big MO paying 9% .......LOL
Bill Maurer profile picture

That's a dividend yield. Not a bond yield.

Altria just issued 30-year debt at 4.45%. Shows you how good the rate is that Apple got.
drmerle profile picture
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