Apple’s Record Plunge Into Debt Pool
Offering Sets Record; Demand Was More Than $50 Billion
By KATY BURNE and MIKE CHERNEY
Goldman Sachs Group Inc. GS +0.66% and Deutsche Bank AG DBK.XE +6.11% sold the debt for Apple to investors in all corners of the credit markets, from buyers overseas to municipal-bond investors to portfolio managers who typically prefer ultrasafe government debt. Pension funds, insurance companies and hedge funds also joined in the scramble.
Apple was able to borrow the money in six chunks at historically low costs, taking advantage of a sharp decline in Treasury interest rates, which drive the prices of corporate debt.
Apple is selling $17 billion of bonds, a record amount for a U.S. investment-grade corporate offering. Katy Burne reports on the News Hub. Photo: Getty Images.
Investors were also excited to add a new name to their debt portfolios—it was Apple’s first bond offer in almost 20 years. There was $52 billion worth of orders for the deal, making it one of the most hotly desired bond deals Wall Street has ever seen, said bankers at Deutsche Bank.
The technology company was able to borrow at rates nearly as low as the highest-rated triple-A firms in the world. It borrowed $5.5 billion for 10 years at an annual yield of 2.415%. It also issued three-year debt at 0.511%, five-year debt at 1.076% and 30-year debt at 3.883%. And Apple sold floating-rate bonds that mature in three and five years at rates of 0.05 and 0.25 percentage point over the three-month London interbank offered rate, an industry benchmark.
Apple said earlier this month it would borrow cash as part of a plan to return $100 billion to shareholders by the end of 2015. A company spokesman declined to comment on specifics of the sale.
Apple has a huge cash stockpile, but much of its money is overseas. Raising cash in the bond market helps Apple avoid the big tax bill that would hit if the company brought its cash back to the U.S., executives said last week.
"Apple bonds are a low-risk alternative to Treasury…bonds in this yield-grabbing environment," said Mark MacQueen, co-founder and portfolio manager at Sage Advisory Services Ltd., which oversees $11 billion in assets. He bought some Apple bonds maturing in three, 10, and 30 years.
Tuesday afternoon’s bond sale was the culmination of a frenzied process that began Monday when underwriters at Goldman and Deutsche Bank contacted investors around the world to gauge their interest in buying Apple’s debt.
Apple is sitting on well north of $100 billion in cash, and it’s of five companies that hold roughly 25% of the combined free cash in the S&P 500, but it still tapped credit markets to help fund its dividend and buyback program, Emily Chasan reports.
Apple Inc. has so far downplayed the notion that it needs to make an iPhone with a larger screen, but a growing number of analysts appear to be banking on the company doing just that. MarketWatch’s Dan Gallagher looks at whether we can expect a 5-inch iPhone this year. (Photo: Getty Images)
Orders started flowing in and, by Tuesday morning, bankers had enough investors to sell the Apple debt two times over if they wanted. Seeing such strong appetite, the bankers late Tuesday morning lowered the interest rates they said Apple would pay to borrow the cash.
The bonds were priced after the close of the stock and bond markets Tuesday. Investors who didn’t get a piece of the deal were soon clamoring for the debt, trying in what is known as the "gray market" to buy from investors who had gotten in on the initial offering. Investors can use this market to buy bonds after a deal has been launched but before the bonds are tradable.
A customer inspects the offerings at a Beijing Apple store last month.
Other companies this week have also rushed to borrow at the historically cheap levels. On Monday, rates on U.S. Treasury securities, which are tied to the rates for prices of corporate debt, hit their lowest yields this year, at 1.65% on the 10-year note. The yield ticked slightly higher Tuesday, to 1.674%.
Apple’s debt will be rated AA-plus by Standard & Poor’s Ratings Services and Aa1 by Moody’s Investors Service, just shy of the gold-standard top triple-A rating. S&P said in a statement that its rating reflects the expectation Apple will maintain "excellent liquidity and significant net cash balances."
"Companies that have very little to no debt can be opportunistic when rates hit new lows, and Apple is doing exactly that," said Jason Graybill, who oversees $1.2 billion of investment-grade bonds at Carret Asset Management LLC.
Investors have been chasing after high-quality corporate bonds despite low yields. In the first 17 weeks of 2013, a record $55.2 billion flowed into bond mutual funds and exchange-traded funds that focus on investment-grade corporate debt, according to Thomson Reuters unit Lipper. The previous record was $49.9 billion for the same period in 2010.
In response, companies have issued a record year-to-date amount of high-grade bonds in the U.S., Thomson Reuters data show. Companies have sold $358.14 billion this year.
—Min Zeng contributed to this article.
Write to Katy Burne at katy.burne and Mike Cherney at mike.cherney
A version of this article appeared May 1, 2013, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Apple’s Record Plunge Into Debt PoolJuicy DealApple’s debt offering is the largest ever by a company.