Apple Inc. Prepares For Major Bond Sale To Fund Capital Returns

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Apple submitted a preliminary regulatory filing with the Securities and Exchange Commission (SEC) indicating its intention to sell bonds. The move came prior to the expected interest rate hike by the Federal Reserve probably later this year or early next year.

Apple seven-part bond offering

Based on the filing, Apple is planning a seven-part bond offering with floating rate notes due 2017 and 2020 as well as fixed-rate notes due 2017, 2020, 2022, 2025, and 2045.

According to Apple, it will use the net proceeds from the bond sales for general corporate purposes including stock buybacks and dividend payments under its recently expanded capital return program.

Apple also intends to use the proceeds for working capital, capital expenditures, acquisitions and repayment of debt. “We may temporarily invest funds that are not immediately needed for these purposes in short-term investments, including marketable securities,” according to the tech giant.

Goldman Sachs and Bank, Bank of America Merrill Lynch, and JP
Morgan serves as joint book-running managers for Apple’s bond offerings. The company did not yet reveal the pricing of the bonds.
Apple’s previous bond offering

In 2013, Apple sold approximately $17 billion in bonds, which was the largest bond sale by a U.S. company at the time. The following year, the iPhone maker sold $12 billion in bonds including a euro bond sale. Earlier this year, Apple raised $6.5 billion and 1.25 Swiss francs from its bond offerings.

Apple has a cash pile of around $194 billion overseas by the end of March, which means that it has no problem funding its capital return program. However, it would be easier or more practical for the company to sell bonds than repatriating its cash, according to analysts.

According to analysts, Apple will be able to take advantage of tax-deductible payments and prevent a large tax bill by offering bonds. The company is expected to incur a U.S. tax charge of up to 35% if it repatriates its cash overseas.

Apple capital return program

Last week, Apple announced that its board of directors increased its capital return program by more than 50% to $200 billion in cash by the end of March 2017.

Under the expanded capital return program, Apple will repurchase shares worth $140 billion, up from $90 billion. The company also increased its quarterly dividend payment by 11%. The board of directors approved a dividend payment of $0.52 per share payable on May 14 to shareholders on record as of the close of business on May 11.

Apple already returned $112 billion in capital to shareholders including $80 billion in stock buybacks since 2012.

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