Apple returns to bond market with multi-billion dollar issue

Make way for more iBonds.

Apple returned to the corporate bond market on Thursday with a multi-billion dollar offering aimed at funding the dividend increase and share buyback announced earlier this week.

The iPhone maker is offering notes across six tenors, including two floating rate notes that mature in 2020 and 2022. The fixed-rate notes span three- to 10-year maturities. Initial price talk on the company’s 10-year bonds was set at 90 basis points above Treasuries, for a yield of about 3.25 per cent.

Investor interest in the six-part offering was intense. By early afternoon, orders have already reached more than $22bn, according to a person familiar with the deal.

Apple’s latest bond sale comes just two months after it tapped the market for $10bn and highlights the balancing act the iPhone maker must strike as it hikes payouts to shareholders to record highs even as the vast majority of its cash is trapped offshore because of the steep taxes involved in bringing that money back to the US.

Tim Cook, Apple’s chief executive, told CNBC on Wednesday that he hoped the Trump administration would pass tax reform legislation later this year to allow it to repatriate some of its $240bn held outside the US – more than 90 per cent of its total $257bn cash pile.

“We are in a good position but an unusual one – we can borrow,” he said. “To invest in the US we have to borrow. This doesn’t make sense on a broad basis. I think the administration, you saw, they are really getting this and want to bring this back. I hope that comes to pass.”

Instead Apple has in recent years turned to debt markets to reward shareholders. Just this week, the tech giant increased the size of its capital return programme by $50bn to $300bn. That includes $210bn worth of share buybacks and a dividend of 63 cents, or $13.2bn annually.

“The programme that we’re announcing today reflects the current tax legislation in this country, and there’s a lot that still needs to happen there,” said Luca Maestri, Apple’s finance chief, on Tuesday in announcing the expanded programme. He left open the possibility that Apple could offer even greater returns, perhaps as a special dividend, if tax reform does pass, saying: “Obviously, we will reassess our situation if things change.”

Apple has already issued a total of $88.5bn in term debt, with $10bn in commercial paper outstanding.

The timing of its latest bond sale is also astute, given the fresh drop in borrowing costs following a sharp rise since November.

Yield on the 10-year Treasury stood at 2.355 per cent on Thursday, compared to the 2.475 per cent in February when it launched its last bond sale.

Below is a list of past Apple bond issues.