- Apple issued $US7 billion in corporate bonds on Wednesday – its first debt sale since 2017 – even though it has more $US200 billion of cash on hand.
- The cost of borrowing is low right now, and several companies are taking advantage of the cheap money.
- Apple was just the latest big corporation to tap debt markets this week, following in the footsteps of Disney, Capital One, and Caterpillar.
- US corporations sold more than $US27 billion of investment-grade bonds on Tuesday alone.
- Read more on Markets Insider.
Apple is sitting on a $US200 billion cash pile, making it one of the most cash-rich companies in the world. So why did it sell $US7 billion of debt on Wednesday?
The answer is simple: There’s cheap money available in the bond market, and it’s getting it while rates are still low.
“The primary reason for more issuance overall is firms taking advantage of materially lower interest rates (and stable credit spreads) to opportunistically address funding needs,” Matthew Mish, a global credit strategist at UBS, told Markets Insider.
Bonds have rallied this year, sending yields to historic lows, especially for debt issued over longer periods. The 30-year US Treasury dipped below 2% for the first time ever in August, and yields on 10-year Treasury notes have also hit record lows in 2019.
This means that companies looking to borrow can find lower rates for longer bond durations. Apple will pay less than 3% interest on the new 30-year bonds it issued this week, a significant discount compared with other bonds it has outstanding; the company is paying investors 3.45% on 30-year bonds it sold in 2015, according to Bloomberg.
This is the first time that Apple has borrowed money since 2017. In 2018, the new US tax law allowed Apple to repatriate hundreds of billions of dollars that were overseas at a lower tax rate. The difference funded Apple’s $US175 billion shareholder repurchase program, according to CNBC.
Apple isn’t the only investment-grade company tapping the bond market for money. On Tuesday, several US companies, led by Disney, borrowed a combined $US27 billion. On Wednesday, 15 more deals brought week-to-date issuance to $US54.3 billion, according to Bank of America Merrill Lynch.
Apple plans to use the money from its latest bond issuance for general corporate purposes, such as share buybacks, dividend payments, funding, and acquisitions, it said in its prospectus.
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