Apple Computer (APPL) borrowed $17 Billion in the Bond Market on Tuesday, which is reportedly the largest non-bank bond sale in history. Rated AA+ (just missing the coveted AAA rating), the underwriting syndicate had total orders of $52 Billion, roughly three times what Apple was selling. Orders came in from virtually every corner of the foreign and domestic bond marketplace. Here is a link for a Washington Post article, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/01/heres-what-apple-computers-insanely-great-bond-offering-has-to-do-with-the-federal-reserve/?print=1.
Generally, Technology companies do not borrow because they generate so much cash in the course of business. Apple reportedly already has some $145 Billion in cash on its books. It is not alone, however. Since the Federal Reserve is keeping interest rates so low, many of the Tech Giants are taking advantage of the “Punch Bowl”, as cheap money is called. But, why borrow money that they don’t need? Taxes!
Like many S & P 500 companies, Apple earns much of its Revenue overseas, oftentimes in countries with lower tax rates. If that cash was brought back to the U.S., there would be some major tax consequences. That’s where debt can help.
With the company’s growth and cash accrual, shareholders have been clamoring to receive dividends, something the company had not paid since 1995. In March of 2012, Apple announced that quarterly dividends would be paid and, additionally, a stock buy-back program would be initiated.
Paying dividends has extended the appeal of Apple stock to investors who are interested in receiving dividends. Currently, Apple stock is yielding 2.74%, as of today’s 445.52 closing price. Receiving a cash flow from a security also reduces it’s volatility.
The stock buy-back program generally enhances the stock price, in the short-term, which is another benefit for shareholders. The linked article from The Economist, http://www.economist.com/blogs/buttonwood/2013/05/apples-bond-issue/print, discusses the bond issue from the viewpoint of taxpayers. It notes that the dividend and stock buy-back program can benefit the bonuses of executives, as well.