Apple Inc. (NASDAQ:AAPL) is reportedly preparing for what would be the second biggest corporate bond sale in history, according to a report in the Financial Times. Last week, the company said it was raising its share repurchase program from $60 billion to $90 billion and would pay for it through international and domestic bond sales.
Apple funds buybacks with bond offering
The company said the proceeds from the sale of the debt will fund its share repurchase. Approximately 88% of Apple Inc. (NASDAQ:AAPL)’s cash is located offshore. If the company repatriated it to buy back more shares, it would face tax charges of up to 35%. The international debt sale is expected to target the Eurozone. Interest rates there are lower than they are in the U.S., and it would offer more diversity to the company’s debt investor base.
Apple Inc. (NASDAQ:AAPL) sold another $17 billion worth of bonds a year ago. At that time, it was the largest corporate debt sale ever, and demand for those bonds topped $50 billion. Verizon Communications Inc. (NYSE:VZ)’s $49 billion bond sale to help pay for its $130 billion acquisition of the rest of Verizon Wireless dwarfed that amount just months later.
Analysts concerned about Apple’s offering
Analysts are apparently worried that Apple Inc. (NASDAQ:AAPL) will flood the U.S. debt market in the wake of last year’s sale of bonds. However, insurers, pension funds and other investors will likely find the bonds to be attractive. The company has a credit quality rating of AA, and analysts expect the company to offer longer tranches. Some analysts believe Apple’s bonds would offer higher yields than government bonds.
However, those who purchased Apple Inc. (NASDAQ:AAPL)’s bounds last year lost money on their investment because the company issued that debt right before last summer’s significant increase in interest rates. As a result, Apple benefited significantly from it, while investors lost money on the deal.
Apple Inc. (NASDAQ:AAPL) management has said they want to maintain the company’s liquidity while also searching for acquisition targets. This bond offering will help the company do just that.