Apple Inc. Nearing $100 Billion In Debt: What Does This Mean?

Apple Inc. Nearing $100 Billion In Debt: What Does This Mean?
Photo by kropekk_pl (Pixabay)

A few days after declaring its earnings, Apple raised $10 billion in debt. Similar to the bond sales done in the past, this will also be carried out in various tranches with maturities of up to 30 years. The bonds will include both fixed rate notes and floaters.

Apple raises debt a little earlier than usual

There was nothing much to say about the new bond offering, and it was much like other papers sold by the company every year. However, this time, the company raised bonds a little earlier than the tradition, and it is now nearing $100 billion in debt, according to Evan Niu of The Motley Fool.

Usually, these bond offerings are announced after the iPhone maker gives updates to its capital return program, which is conducted some time in April or May. However, the company needed to sell the bonds a little early this year due to various reasons. The California-based company started its ninth share repurchase program in the previous quarter, and total share repurchases came at $11 billion.

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This depleted its cash reserves, and total cash at the end of the quarter came in at around $15.9 billion. This is the low end of the usual  range of $15 billion to $25 billion that the company keeps for operational and strategic needs, notes Niu.

As the company uses debt for capital returns purposes, its total debt taken over the past five years has grown significantly large. By the end of 2016, the iPhone maker had $87.5 billion in long-term debt and commercial paper. With the recently-raised $10 billion, it will total somewhere around $97.5 billion. The debt has an investment-grade rating. However, in the future, Apple’s credit rating profile may deteriorate with a rise in debt levels, notes Niu.

Large increase in capital return program expected

Meanwhile, RBC Capital Market analyst Amit Daryanani advises investors to buy Apple shares, as the iPhone maker might increase its capital return to shareholders. RBC Capital Markets maintained its Outperform rating. The analyst said that most investors are assuming that upside is somewhere around $140-$150 at present, but there could be an uptick in the stock on the back of higher capital allocations.

“We believe the fundamental reality remains that AAPL’s valuation is materially sub-par to what we anticipate its long-term revenue and EPS potential,” Daryanani says.

On Monday, Apple shares closed up 0.94% at $130.29. Year to date, the stock is up more than 12%, while in the last year, it is up almost 39%.

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