Apple Inc. sold $17 billion in bonds Tuesday, a gargantuan deal that ranked as the largest in global corporate history. And even though the securities are paying microscopically low interest, investors tripped over themselves to buy in.
In the financial equivalent of a line stretching around the block, investors reportedly submitted more than $50 billion in requests, or more than three times the amount available.
The demand stunned Wall Street, where fixed-income offerings are typically staid affairs generating far less hype than Facebook-type stock deals. But after a decade in which investors were bloodied by free falls in the housing and stock markets, the public is desperate for any investments viewed as safe.
“This is a bust-down-the-door deal,” said Marilyn Cohen, president of Envision Capital Management in West Los Angeles. “I’ve been doing this for over 30 years, and I’ve never seen anything like this.”
Apple, whose stock skidded more than 40% in recent months, will use the money to fund a newly expanded program of dividend payments and stock repurchases. The company announced last week that it will return $100 billion to shareholders by the end of 2015.
The effort has stirred controversy because of how the technology behemoth is paying for it.
Apple could easily tap into the $145 billion in cash it has accumulated over the years. But $102 billion of that is held overseas, and the company would have to pay U.S. income taxes of 35% if it transferred the cash back to the U.S.
Moody’s Investors Service said in a March report that U.S. companies had $1.45 trillion in cash overseas at the end of 2012, up 10% from a year earlier. The tech sector accounted for the biggest chunk, with $556 billion stashed abroad. The five companies with the largest overseas stockpiles were Apple, Microsoft Corp., Google Inc., Pfizer Inc. and Cisco Systems Inc., according to the report.
There’s another benefit to Apple from borrowing money. Companies can write off interest payments, lowering their ultimate cost even more.
“When you think about it, it’s kind of strange,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy. “You’re sitting on a pile of cash, but you’re borrowing money to give it back to shareholders. It’s really a kind of testament to our screwy tax laws.”
Beyond the direct effect on Apple and its shareholders, some experts said, the bond sale points out the good fortunes of corporate America and the financial markets. Both are thriving at a time when the broader economy and job markets are not.
The U.S. economy expanded at a paltry 2.5% annual rate in the first quarter, which is too weak to chip away at an unemployment rate stuck at a still-high 7.6%.
But corporate profits have surged in the aftermath of the 2008 global financial crisis, in part through layoffs and feeble hiring. That has pushed up stock prices, with the Dow Jones industrial average climbing more than 13% this year and 125% since the market low in early 2009.
“It just exacerbates the divide between the already-haves and the have-nots,” said Dennis Kelleher, chief executive of Better Markets, a nonprofit focused on financial reform in Washington. “The stock market’s doing great, the debt market’s doing great, corporate America is doing great, and Main Street is still suffering.”
Corporate America has feasted on low interest rates, with many companies jumping at the opportunity to issue cheap debt.
Corporate bond issuance rocketed to $1.8 trillion last year from $600 billion in 2007, according to research firm Dealogic.
Even as companies have been slow to hire, investors have benefited from cash-rich companies boosting dividends.
On Tuesday alone, IBM Corp. raised its quarterly dividend 12% and American Express Co. approved a 15% boost. Chevron Corp., Wells Fargo & Co. and Exxon Mobil Corp. all bumped up their dividends by double digits in April.
The bond sale did more for Apple than provide easy cash.
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Investors snap up $17 billion in Apple bonds – Los Angeles Times
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Investors snap up $17 billion in Apple bonds - Los Angeles Times
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