The Daily Update - Apple's bumper deal

Yesterday Apple Inc. launched a USD 7bn bond deal, its eighth bond offering so far this year. This comes despite the newly drafted US tax-plan which could hugely favour corporate repatriation. According to Bloomberg, Apple holds ~94% of its cash abroad (as at 30 Sept) - this new bond sale highlights uncertainty surrounding the new tax Bill.

The deal, which has been raised to fund a USD300bn share buyback and dividend programme, was so heavily oversubscribed that the offering was apparently increased from an initial size of USD1bn to the USD7bn. The demand was not surprising considering just a few days ago Apple became the first US company to breach a market valuation of USD 900bn, albeit briefly.

The Aa1 rated company issued 6 tranches, ranging from 2- to 30- year maturities; the 30-year bond, for example, was issued at a spread of 100bps over Treasuries, a yield of 3.75%.  We already hold the 3.85% 2043 issue, which is currently trading at a spread around 105bps over US Treasuries, while similar Aa1 rated bonds with a duration of ~16 years sit at around 40bps over. We, therefore, calculate the bond’s risk-adjusted return and yield at an attractive 14%. The USD3bn outstanding bond also has the added bonus of a 4.6 notch uplift; i.e the market is pricing the bond as an A2/A3 bond. Although the new USD 1.25bn, 3.75% 2047 issue is also, currently, trading at a spread of ~59bps over ‘fair value’ - suggesting an expected return and yield of 14.2% -  on a duration weighted basis, the 2043 issue remains more attractive.  

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