Apple has again weighted a big $50 billion increase in its capital return program to debt-financed share repurchases, setting the stage for more blockbuster debt offerings after Apple printed $59 billion of debt in the U.S. since its debut deal almost three years ago, including $15.5 billion so far this year.
“As in the past, we expect to fund our capital return program with U.S. cash, future U.S. cash flow generation and borrowing from both domestic and international debt markets,” CFO Luca Maestri said yesterday on Apple’s earnings call, targeting $87 billion over the next eight quarters via buybacks and dividends. While Apple has issued in multiple currencies in recent years, the $59 billion of dollar-denominated debt accounts for the bulk of Apple's $72 billion of term debt as of the end of March.
April has proven to be a big month for Apple bond news. Apple's now $250 billion shareholder-return plan through March 2018—under which more than $163 billion was returned via buybacks or dividends through March—prompted Apple to make its debut bond offering on April 30, 2013, when it completed a $17 billion, six-part offering. One year later, on April 29, 2014, the company placed $12 billion in seven parts. Subsequent deals include a $6.5 billion, five-part deal in February 2015, an $8 billion, seven-part deal last May, and offerings so far this year of $12 billion in nine parts in February and $3.5 billion last month via reopenings.
The company paid relatively high costs for funds in mid-February, when the floodgates had just reopened after a harrowing early-month shutdown for the primary markets amid oil-related global volatility. But its costs have since tumbled: Apple’s 4.65% issue due Feb. 23, 2046—placed on Feb. 16 at T+205 as part of a nine-part deal—was reopened on March 17 at T+155, or well below the coupon rate at 4.24%, to raise the total amount outstanding to $4 billion. The issue stands roughly 15 bps wider week to week after the latest buyback news, but is still trading tighter since that tap in the low T+140s this morning, and at lower yields near 4.15%, trade data show.
Still, spreads are up since Apple placed 3.85% 2043 bonds in 2013 at T+100, followed by 4.45% 2044 bonds at T+100 in 2014.
Even as its first-quarter results revealed brisker-than-expected headwinds for its top line, Apple yesterday raised its overall program of direct returns to shareholders to $250 billion, from $200 billion. It boosted its share buyback authorization by $35 billion, to raise the total plan to $175 billion, as the program builds rapidly from an initial $10 billion amount announced in March 2012. Through March 26 this year, buybacks under the plan totaled $117 billion, according to S&P Capital IQ.
Apple also raised its dividend for the fourth time in less than four years, boosting the quarterly payout by 10% to $0.57 per share while stating plans for further annual increases.
For reference, Apple bought back more than $7 billion of its shares over the latest quarter and roughly $37 billion over the last 12 months, up from $34 billion over the year-earlier period. (At all-time peak levels, Apple repurchased $45 billion of its shares over the 2014 calendar year.)
Even so, the company continues to generate free cash. The combined $60 billion across buybacks, dividends, and capital spending over the last 12 months was still less than Apple’s $67.5 billion of operating cash flow. Notably, the company’s balance of cash and marketable securities increased by $17 billion over the latest quarter to roughly $233 billion, 90% of which was held offshore, the company said.
But while the pace of capital returns has been aggressive ahead of this latest boost, Apple may be tapping the brakes going forward, after operating cash flow declined 12% over the last 12 months from the year-earlier period. The company’s targeted $87 billion of investor returns over the next eight quarters compares with $94 billion over the last eight periods, filings show.
The AA+/Aa1 ratings profile on Apple senior debt includes stable outlooks on both sides, and both agencies today affirmed ratings following the boost to capital returns. "Although total shareholder returns may exceed discretionary cash flow on occasion, robust overall cash generation affords the company the flexibility to return large amounts of cash to shareholders without detracting from the overall credit quality," S&P stated today, characterizing Apple's financial policy as "conservative" and its financial risk as "minimal." — John Atkins
