Apple Inc. (AAPL): A Closer Look Back At The Bond Issue

New issues in U.S. corporate bond markets topped $43 billion last week, with the action dominated by big issuers. Here are a few of the highlights.

Apple Inc. (NASDAQ:AAPL) usually makes a big splash when introducing new products, and it continued that tradition by making the largest corporate debt issue in history . The company borrowed $17 billion spread over six tranches, as shown in the table below.

Principal Amount

Coupon Rate and Maturity

$1,000,000,000

Floating-rate notes due 2016

$2,000,000,000

Floating-rate notes due 2018

$1,500,000,000

0.45% notes due 2016

$4,000,000,000

1% notes due 2018

$5,500,000,000

2.4% notes due 2023

$3,000,000,000

3.85% notes due 2043

Source: Apple 424B2 SEC filing dated May 1, 2013.

The money will be used “for general corporate purposes, including repurchases of our common stock and payment of dividends under our recently expanded program to return capital to shareholders.”

Apple Inc. (NASDAQ:AAPL)

It may seem strange that a company with a large pile of cash on its balance sheet would borrow to finance dividends and share buybacks, but when much of that cash is offshore, borrowing can make more sense than paying taxes to bring the capital back to the U.S. CAPS player ikkyu2 posted a good blog write-up explaining why borrowing is a better deal for the company than repatriating the cash. Apple Inc. (NASDAQ:AAPL) is essentially shorting bonds to buy its stock. Given the low rates on the bonds, investors might want to pass on the other side of that trade.

During an ordinary week, CNOOC Limited (ADR) (NYSE:CEO)‘s four-part, $4.5 billion offering would have been the big deal. The money will be used to help repay a bridge loan that financed CNOOC’s acquisition of Nexen. If anyone still needs evidence that business is an international enterprise, the Chinese oil company borrowed U.S. dollars through its British Virgin Islands finance subsidiary to pay for the acquisition of a Canadian company.

Barrick Gold Corporation (USA) (NYSE:ABX) and its North American finance subsidiary dug up $3 billion over three issues. $2 billion pay down a revolving credit facility, $500 million will repay maturing notes, and the other $500 million goes to the ever-uninformative “general corporate purposes.”
International Business Machines Corp. (NYSE:IBM) placed $2.25 billion split between three- and seven-year paper. The “Use of Proceeds” statement only listed “general corporate purposes.” A search at FINRA.org turned up four issues totaling more than $4.5 billion maturing over the next 12 months, so it’s a good bet that debt repayment will be the specific corporate purpose for the new money.