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Apple Inc. (AAPL): The Debt Bombshell You Probably Missed

The third move, which was supported by David Einhorn, hedge fund manager and founder of Greenlight Capital, was the issuance of preferred shares, which carry a fixed dividend.

Apple vs Microsoft vs Google

Apple Inc. (NASDAQ:AAPL) paid higher interest rates on a record $17 billion bond sale than rival Microsoft Corporation (NASDAQ:MSFT). Apple’s debt to equity ratio is 12.5%, significantly lower than the 18.5% of Microsoft, which has $16.9 billion of bonds outstanding, and the highest Aaa credit rating from Moody’s and an equivalent AAA at Standard & Poor’s.

Moody’s and S&P ranked Apple a level lower at Aa1 and AA+, respectively. According to Fitch, the rating tier is inconsistent with Apple Inc. (NASDAQ:AAPL)’s credit risk, and stated that the company’s significant liquidity cushion was offset by the threat of volatile consumer preferences, significant competition, and rapid technology changes. Besides, Microsoft Corporation (NASDAQ:MSFT) is operating in the same “hostile” environment, but did not lose its perfect rating.

Fitch hasn’t released a public grade for Apple. It said such a ranking would be likely to fall “at the highest end” of the single-A tier, at least three levels below the AA+ grade of Microsoft. From a bondholder’s perspective, Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) are virtually equal, except that Microsoft has a larger installed base and better channels for recurring revenue.

Google Inc (NASDAQ:GOOG) typically avoided debt offerings. The company sold $3 billion worth of bonds for the first time in 2011. One can only assume that, under the current market conditions, the chances that Google Inc (NASDAQ:GOOG) will issue bonds are relatively high.

The foolish bottom line

The environment where Apple operates, including the current U.S. tax laws, encourage corporate America to keep money abroad, for obvious reasons. Companies such as Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT) will continue to juggle in any way, shape, or legal form to avoid high U.S. marginal income taxes. Despite the fact that Apple is a technology company subject to trends and fast changing consumer preferences, Apple Inc. (NASDAQ:AAPL) should have no problem paying coupons to bondholders, rather than pay a fat check to the IRS. I truly believe that the folks in Washington should be more proactive to adjust U.S. tax laws to meet the 21st century new reality. All that said, the single most impressive fact about the whole story is that Apple Inc. (NASDAQ:AAPL) still expects its cash on hand to grow.

The article The Real Reason Why Apple Issued Debt originally appeared on

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